* LME copper stocks fall to lowest since Dec 2005
* Premium for cash copper over 3-month narrows (Updates prices)
LONDON, Sept 1 (Reuters) - Copper prices scaled two-year highs on Tuesday as robust data on manufacturing activity in top consumer China, a weaker dollar and falling inventories boosted sentiment and expectations of strong demand for industrial metals.
Benchmark copper on the London Metal Exchange was up 0.4% at $6,691 a tonne at 1601 GMT. Prices of the metal used widely in the power and construction industries earlier touched $6,830 a tonne, the highest since June 2018 and a gain of 56% since the middle of March.
“Expectations are for strong Chinese demand,” said ING analyst Wenyu Yao. “China’s Caixin PMI data was very healthy.”
MANUFACTURING: The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 53.1 last month from July’s 52.8, marking the sector’s fourth consecutive month of growth and the biggest rate of expansion since January 2011.
Expanding activity was bolstered by the first increase in new export orders this year as manufacturers ramped up production to meet rebounding demand.
DOLLAR: A lower U.S. currency makes dollar-denominated commodities cheaper for consumers in other currencies. It also increase costs for producers in other currencies that are appreciating against the dollar.
INVENTORIES: Stocks of copper MCUSTX-TOTAL in LME-registered warehouses at 88,250 tonnes, the lowest since December 2005 have plummeted nearly 70% since the middle of May.
Cancelled warrants - metal earmarked for delivery and no longer available to the market - at more than 50% of the total have also fuelled worries about supply on the LME market.
This can be seen in premium for the cash over the three-month copper contract closing at $30.50 CMCU0-3 on Friday, the highest since March last year. It was last at $21.5.
OTHER METALS: Aluminium was up 0.9% at $1,816 a tonne, zinc rose 1.3% to $2,549, lead was little changed at $1,973, tin gained 1.9% to $18,180 and nickel climbed 1% to $15,525.
CHILE: Traders said an earthquake near the coast of North Chile had little lasting impact on copper prices. (Reporting by Pratima Desai; editing by David Evans)
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