METALS-Copper at 2-week high, tracks oil, equities

* Copper hits $3,540.75, highest since Feb. 10

* A fall in LME copper inventories supports prices

* Weak macro data continues to cap the market

(Updates with closing prices)

By Michael Taylor and Humeyra Pamuk

LONDON, Feb 26 (Reuters) - Copper rose to its highest level in more than two weeks on Thursday, as stronger equity markets, firmer oil and a fall in inventories supported prices.

Fears however persist over demand and the global economy, with more gloomy data suggesting a weaker consumption outlook.

Copper for three-month delivery MCU3 on the London Metal Exchange rose 3.6 percent to $3,540.75 a tonne, its highest since February 10 and was at $3,500 a tonne at the close versus $3,415 on Wednesday.

"Look at oil, equities, everything's rising, the sentiment's better," said Andrey Kryuchenkov, an analyst at VTB Capital. "Risk aversion has receded a bit."

Oil rose above $44 a barrel after the United Arab Emirates announced deeper cuts in crude supply to Asia for April in a possible signal that OPEC will cut output further at its next meeting in March.

European shares closed 2 percent higher, snapping a four-day losing run as banks rallied from recent sharp losses, as Royal Bank of Scotland (RBS) (RBS.L) led a resurging banking sector. [.EU]

Moreover, a hefty drawdown in inventories and a rise in cancelled warrants -- material earmarked for delivery -- supported the prices.

Stocks of copper, used extensively in construction, fell by 2,925 tonnes to stand at over half a million tonnes, still at their highest in more than five years.

Global recession has shrunk demand for industrial metals as the industrial activity slowed down. Copper has lost more than 60 percent since July 2008, when it touched a record high close to $9,000 a tonne.

But some analysts are upbeat the weak demand could be bottoming out. "We've got anecdotal evidence that demand may be somewhat stronger," said analyst Michael Widmer at BNP Paribas. "If you look at cancelled warrants there was a sharp rise."

Also helping sentiment, South Korea bought 5,000 tonnes of copper cathode for shipping to the port of Gunsan, an official at the state-run Public Procurement Service said. [ID:nSEO54442]

"What goes down must come up," said one LME trader. "If you look at all markets -- they are all reacting -- it's the end of the month isn't it ?"

"You have the same thing on the stock market -- today we had RBS -- and some people are saying maybe that's all the bad news out of the way. Probably a little bit more (Chinese) demand too." Another trader said there may be signs that Chinese stimulus packages were starting to take an effect on prices.

GRIM MACRO DATA

Macro data remained bearish however -- the German economy shrank 2.1 percent in the last quarter of 2008, its weakest quarter since reunification in 1990, and a bigger than expected fall in U.S. existing home sales in January slowed gains. [ID:nN25480109] [ID:nLP346789]

Sales of newly built U.S. single-family homes slumped to a record low in January, while prices fell to their weakest level in five years, according to a government report on Thursday that highlighted the continued distress in the housing market.

Aluminium closed at $1,364 a tonne versus $1,343. The metal used in transport and packaging has come under pressure in recent months on news of falling car sales data from auto makers.

LME stocks jumped 18,275 tonnes to 3.2 million tonnes, a reminder of weaker demand for the metal.

Nickel MNI3 firmed $25 to $10,100, lead MPB3 gained $14 to $1,044 and zinc MZN3 was lower at $1,138 from $1,145.

Tin MSN3 gained $200 to $10,950.

Metal Prices at 1705 GMT Metal Last Change Pct Move End 2008 Ytd Pct

move COMEX Cu 157.30 4.85 +3.18 139.50 12.76 LME Alum 1364.00 21.00 +1.56 1535.00 -11.14 LME Cu 3485.00 70.00 +2.05 3060.00 13.89 LME Lead 1043.00 13.00 +1.26 999.00 4.40 LME Nickel 10025.00 -50.00 -0.50 11700.00 -14.32 LME Tin 10950.00 200.00 +1.86 10700.00 2.34 LME Zinc 1130.00 -15.00 -1.31 1208.00 -6.46 SHFE Alu 11720.00 -40.00 -0.34 11540.00 1.56 SHFE Cu* 27820.00 320.00 +1.16 23840.00 16.69 SHFE Zin 10255.00 -35.00 -0.34 10120.00 1.33 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Nick Trevethan; editing by Peter Blackburn)