METALS-Copper drops after weak China, euro zone data

* Data shows contraction in China manufacturing activity
* Euro zone business decline steepens unexpectedly - PMI
* Worries about queue to access zinc in warehouses

By Harpreet Bhal and Eric Onstad
LONDON, Sept 20 (Reuters) - Copper slipped on Thursday, retreating from
4-1/2 month highs in the previous session as confidence was shaken by data
showing a downturn in business activity in the euro zone service sector and a
contraction in manufacturing in top copper consumer China.
Three-month copper on the London Metal Exchange fell 1.4 percent to
$8,231.50 a tonne by 1353 GMT. Prices touched their highest levels since early
May on Wednesday, supported by a surprise decision from the Bank of Japan to
further ease its monetary policy.
The benchmark industrial metal has gained 13 percent since early August on
optimism over bond buying by the European Central Bank and stimulus measures in
the United States and China, but is still shy of a yearly peak of $8,765 touched
in February.
"For copper, the market was stalling for more than three months in a tight
range. Then you had QE3 and things improved. But in the long-run you need
fundamentals to recover and we need to see an improvement in China," said Andrey
Kryuchenkov, analyst at VTB Capital.
"I am still upbeat on China's prospects towards the end of the year and I
think they will stabilise their growth to maybe below 8 percent. And that is
important for metals."
Manufacturing in China contracted for the 11th month in a row in September,
according to a private sector survey of factory managers that indicated the
world's second-largest economy remains on track for a seventh quarter of slowing
growth.
In Europe the downturn in activity in the euro zone's service sector
steepened this month at the fastest pace since July 2009, Markit's purchasing
managers indexes showed, with French companies performing particularly poorly.
The gloomy surveys heightened worries that the European Central Bank's
aggressive new bond-buying plan has so far failed to inspire any major
improvement in business at ailing euro zone companies.
Still, China's PMI number, which provides the first glimpse of September's
conditions for Chinese industry, seems to point to a month in which a slide was
halted but not reversed, suggesting limited downside for prices, Singapore-based
analyst Bonnie Liu of Macquarie said.
"We do see some things getting better from September as orders filter down
into the market. The macro environment is improving and so are orders for
cement, steel and copper," she said.
"Still prices are not going to move up much because that demand is not that
strong ... it's only a seasonal pick up for the fourth quarter."

NEARBY TIN SPREADS EASE
Adding to pressure for base metals prices was a weak euro, which fell to a
one-week low against the dollar following the downbeat euro zone business
activity data. A stronger dollar makes commodities priced in the U.S. unit more
expensive for those holding other currencies.
In other metals, tin was the worst hit, falling nearly 5 percent at
one point to $20,441 a tonne as dollar strength triggered chart-based selling
when prices pierced support at the 200-day moving average near $20,800. It later
traded 3.3 percent weaker at $20,700 a tonne.
Tightness in the nearby spreads eased as the September contract expired
after shorts had to scramble on Wednesday to cover, facing off against a large
long.
The "tom/next" spread , which represents the cost of rolling over
an expiring position to the following day, spiked as high as $25 on Wednesday,
the most expensive in six months. It peaked at $10 on Thursday and was last
quoted back to zero.
In zinc, another 100,000 tonnes of inventories were cancelled, or earmarked
for delivery, in New Orleans warehouses, increasing to 37 percent total
cancelled material in the galvanizing metal.
"U.S. zinc stocks have the potential to become difficult to access if a
substantial zinc queue was to build up in New Orleans, especially if material in
Detroit was also caught in an aluminium queue," analyst Nic Brown at Natixis
said in a note.
"This could push the zinc market into the same dynamic as the aluminium
market, with ever-rising physical premiums reflecting the lengthening wait-times
inherent in accessing stocks held at the larger warehouses."
Three-month zinc lost 0.9 percent to $2,104.50 a tonne and battery
material lead shed 1.5 percent to $2,238.
Aluminium fell 1.3 percent to $2,109.25 a tonne and nickel
declined 0.1 percent to $17,735.
Metal Prices at 1356 GMT
Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T
Metal Last Change Pct Move End 2011 Ytd Pct
move
COMEX Cu 375.65 -6.50 -1.70 344.75 8.96
LME Alum 2110.00 -28.00 -1.31 2020.00 4.46
LME Cu 8226.25 -123.75 -1.48 7600.00 8.24
LME Lead 2237.25 -33.75 -1.49 2034.00 9.99
LME Nickel 17714.00 -41.00 -0.23 18650.00 -5.02
LME Tin 20635.00 -765.00 -3.57 19200.00 7.47
LME Zinc 2103.25 -20.25 -0.95 1845.00 14.00
SHFE Alu 15700.00 -155.00 -0.98 15845.00 -0.92
SHFE Cu* 59310.00 -1130.00 -1.87 55360.00 7.14
SHFE Zin 15535.00 -285.00 -1.80 14795.00 5.00
** Benchmark month for COMEX copper
* 3rd contract month for SHFE AL, CU and ZN
SHFE ZN began trading on 26/3/07