* LME copper up at nine-month peak; dollar in focus
* Two players hold more than 80 pct of LME copper stocks
By Nick Trevethan and Rebekah Curtis
LONDON, July 21 (Reuters) - Copper rose more than 2 percent to a nine-month high on Tuesday, as economic sentiment improved and analysts said the metal looked strong fundamentally.
Copper for three-month delivery on the London Metal Exchange MCU3 closed at $5,400 a tonne versus a close of $5,345 on Monday. The metal used in power and construction hit a session high of $5,469, its highest since mid-October.
"Copper has been one of the better-placed metals because it's a uniquely versatile metal used in a whole variety of products," said Calyon metals analyst Robin Bhar. "Therefore it's able to weather the downturn."
"Supply/demand is balanced. That is making copper stand out alone in being fundamentally much stronger than other metals."
Hefty Chinese buying has helped spur copper 74 percent higher so far this year. It has been unexpectedly resilient in recent weeks, defying analysts' predictions that a traditional summer lull and fading Chinese demand would hit prices.
Copper's current strength is largely fuelled by investors' concerns about market tightness in the wake of Chinese demand depleting stocks and a falling dollar, which makes commodities priced in the currency cheaper to holders of other currencies.
Investors will eye Chinese final commodity trade numbers, due on Wednesday. [ID:nLL354298]
"This is a summer of content. Markets are taking heart from the dollar story, and we are also seeing that in gold," said Nick Moore, analyst at RBS. "Although we have seen the preliminary (Chinese) trade numbers, the final data will remind the market just how huge China's imports have been," he added.
Traders voiced worries about dominant positions. According to latest LME data one entity holds 30-40 percent of available copper warrants and another holds 50-80 percent. Between them they could well hold the whole 266,425-tonne stockpile. <LME/WC>
"They are exerting a tight hold on the warrants which underline the LME stocks," Bhar said. "This is creating tightness but it is difficult to know if this is genuine market tightness or engineered tightness known as a squeeze."
Cash copper prices MCU0 flipped back into a discount, or contango, to the benchmark three-month price on Monday, having spent most of last week at a premium. On Tuesday the spread MCU0-3 was $11 contango.
Copper gave up some ground after a testimony from U.S. Federal Reserve Chairman Ben Bernanke provoked the dollar to pare losses.
Bernanke said the U.S. economic outlook appeared to be improving and the U.S. central bank was carefully reviewing ways to withdraw its massive monetary policy stimulus when conditions permitted. [ID:nWEQ001226]
Aluminium MAL3 closed at $1,715 a tonne from $1,710 after a 7-month high of $1,754. Stocks of the metal used in transport and packaging jumped 35,000 tonnes to a record high near 4.6 million tonnes, about six weeks worth of global consumption.
Lead MPB3 was at $1,689 a tonne from $1,704 and zinc MZN3 traded at $1,652/1,655 from $1,667 a tonne. It earlier hit a 1-month high of $1,679.75.
"The long term outlook for zinc is positive," Standard Bank said in a note. "With profit taking now apparently at an end, and with new long positions being built elsewhere, zinc may now ... stand to benefit."
Tin MSN3 was at $13,975/14,000 from $14,000 and hit a day's high of $14,150, its highest since July 8. The backwardation on tin climbed to about $225, compared to a contango of $40 in mid-June, as analysts cited apparent tightness in the market. A dominant position holds 30-40 percent of available tin warrants.
Nickel MNI3 was at $15,975 from $16,225. Metal Prices at 1643 GMT Metal Last Change Pct Move End 2008 Ytd Pct
move COMEX Cu 244.60 -1.40 -0.57 139.50 75.34 LME Alum 1715.00 7.00 +0.41 1535.00 11.73 LME Cu 5380.00 70.00 +1.32 3060.00 75.82 LME Lead 1675.00 55.00 +3.40 999.00 67.67 LME Nickel 15830.00 -395.00 -2.43 11700.00 35.30 LME Tin 13850.00 -150.00 -1.07 10700.00 29.44 LME Zinc 1647.00 -20.00 -1.20 1208.00 36.34 SHFE Alu 13835.00 -110.00 -0.79 11540.00 19.89 SHFE Cu* 43020.00 -490.00 -1.13 23840.00 80.45 SHFE Zin 13715.00 -165.00 -1.19 10120.00 35.52 ** 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 Michael Taylor; editing by Keiron Henderson)