AB: METALS-Shanghai copper off 4-mth high; mkt weighs outlook
* LME copper retreats after overnight surge, stocks in focus
SINGAPORE, March 5 - Shanghai copper futures pulled back sharply from early gains on Thursday, and London retreated after rallying almost 6 percent overnight as investors weighed optimism about China against the outlook elsewhere.
Shanghai copper hit a four-month high earlier, adding to 5 percent gains on Wednesday, while London had also risen after a 6 percent surge overnight on hopes of extra stimulus spending by China, the world's third largest economy, and signs that the country's manufacturing sector may be bottoming.
But analysts pointed out the effects of China opening up its pursestrings were unlikely to manifest as rising metals demand for many months.
"The main goal of the Chinese government announcement is to inject some confidence into markets. The comments will have a far greater impact on sentiment than on consumption, certainly in the next few months," Barclays Capital analyst Yingxi Yu said.
"The rally we are seeing is more about hopes of a pick-up than any immediate impact on physical demand. After all, we are yet to see clear signs that the previous actions are having an effect on consumption."
Shanghai copper for delivery in May rose 660 yuan, or 2.7 percent, to 29,900 yuan at the midday break, off an earlier four-month high of 30,600 yuan.
London Metal Exchange copper fell $65 to $3,680. On Wednesday, copper hit $3,785, its highest since Nov. 27, scoring its biggest daily rise in around 6 weeks.
Markets were cheered when China's Premier Wen Jiabao said China will achieve 8 percent growth this year, but hopes that China will weather the downturn are being countered by more sobering news on the global economy.
Reports on Wednesday showed U.S. employers cut nearly 700,000 jobs in February and the U.S. service sector slump deepened, though the fall was less than expectations.
LME copper stocks fell 4,850 tonnes to just over 526,000 tonnes and have dropped by 3 percent over the past week. More falls are expected as the amount of metal tagged for removal from exchange warehouses increased by about 10,000 tonnes to 64,400 tonnes.
Half the available copper stock in Asia and 10 percent of the material in Europe is earmarked for delivery and many in the market believe the drawdown in the past week or two is the result of an arbitrage opportunity -- buying metal cheaply on the LME to sell at a profit in China.
"A significant part of the copper leaving the LME is going China. Warrants are not that easy to get hold of, so people will grab them wherever they can," a trader in Singapore said.
But others wondered whether the falls may also stem from buying by consumers in other parts of the world who are unable to source metal directly from smelters due to production cuts in the past nine months and instead are turning to the exchange.
"There have been sizeable cancellations in Europe so it seems that there is some demand out there. I wouldn't say demand in Europe is rising, but supplies seem to be tightening up there," a second trader said.
Zinc slipped $24 or 2 percent to $1,200 after rising 8 percent overnight. Lead fell 2.5 percent to $1,150 following a 10 percent rally. Shanghai zinc surged at the opening, rising to within 40 yuan of it upside limit to touch 10,945 yuan, its highest since Jan. 20.
