* China services sector growth expands modestly
* Arbitrage between Shanghai, LME prices fall
* Ormet to cut output at Ohio aluminium smelter to third of capacity
By Harpreet Bhal and Melanie Burton
LONDON/SINGAPORE, Aug 5 (Reuters) - Copper prices edged lower on Monday, following strong gains last week, after service sector data from top metal consumer China failed to lift expectations for demand in the world's top consumer of metals.
Three-month copper on the London Metal Exchange closed at $6,975 a tonne, down from a close of $7,005 a tonne on Friday, when it hit a one-week high of $7,079 in intraday trade.
Copper prices closed up for the first week in three on Friday, by 2 percent, but are facing losses of 12 percent on the year.
Activity in China's services sector expanded modestly in July, a private survey showed, as new business orders recovered from a multi-year low.
"The data out of China has provided some reassurance that demand is not dropping off a cliff, but there are still some significant concerns about the Chinese economy and the knock-on effect for metals demand," said Ross Strachan, an economist at Capital Economics.
The show of strength in the services data was tempered by a fall in prices charged by companies, suggesting demand was still too weak for firms to raise prices, which hit a nine-month low in July.
Metals market direction is likely to be dictated by further data from China this week, which is expected to confirm that the economy is still shifting down but is not about to come to a screeching halt.
The latest data showed copper inventories in warehouses monitored by the Shanghai Futures Exchange rose 1.2 percent from last Friday.
The most-traded November copper contract on the Shanghai Futures Exchange rose 0.3 percent to close at 50,180 yuan ($8,200) a tonne.
"The arbitrage between Shanghai and LME prices appears to have fallen, which could be bearish for Chinese July preliminary import data released this Thursday," analysts at ANZ said.
Gloom over weaker economic growth in China has led some investors to miss signs of robust underlying demand for copper, which some analysts say may catch short-sellers by surprise.
In industry news, Ormet Corp. will slash output at its Hannibal, Ohio aluminium smelter to a third of capacity within two weeks and may stop production altogether as it struggles with soaring power costs and weak aluminium prices.
Benchmark aluminium closed at $1,800 a tonne from a close of $1,809 on Friday, zinc at $1,869 from $1,866 and nickel at $13,875 from a last bid of $13,995 on Friday.
Lead closed at $2,122 per tonne from $2,121 on Friday while tin closed at $21,225 from $21,125.