LONDON - Copper rose 3 per cent to hit three-month highs on Friday as a fall in inventories and a weaker US dollar lifted metal markets, while investors sought more clarity on Chinese demand. Copper for three month delivery on the London Metal Exchange traded at $US3,725 a tonne in rings, from $US3,680 at the close on Thursday and compared with a session high at $US3,785.25. LME copper stocks fell 3,175 tonnes to 522,025 tonnes, in line with falls seen in the past week, with Asian deliveries rising. But cancelled warrants - material earmarked for delivery - fell to 54,000 tonnes from Thursday's 60,775 tonnes. The question on investors' lips now is whether the rises seen in cancelled warrants this week are due to improving demand from China or stockpiling. "The $US64 million dollar question is whether it's going into China because of an improvement in demand, which is unlikely, or is it going into building of stocks by the trade and the government," Robin Bhar, senior metals analyst at Calyon, said. "You want to see the headline stocks falling but also cancelled warrants rising because that would maintain the pace of drawdowns." Arbitrage - buying metal cheaply on the LME to sell at a profit in China - is also a support for demand. Offering further clues, the chairman of state-owned trading firm Minmetals told reporters China plans to buy copper, aluminium and other metals for reserves. Dollar weakness Copper prices have risen about 10 per cent this week, although prices of the metal, used in power and construction, have fallen about 60 per cent since a record $US8,940 in July 2008. "The Chinese are buying across the base metals complex -- whether for strategic or non-strategic reasons," Max Layton, an analyst at Macquarie Bank, said. "However, underlying demand in both China and the world outside of China, is still extremely poor." News that US employers cut 651,000 jobs in February compared with a consensus of 648,000 helped boost industrial metals prices, but traders say the market was mainly focused on Chinese and global demand. Also a support is the weaker dollar against the euro. A lower US currency makes metals priced in dollars cheaper for holders of other currencies. Aluminium rose $US7 to $US1,328 in LME rings. The metal used in transport and packaging has come under pressure in recent weeks on news of falling car sales data from auto makers. General Motors Corp said on Thursday its auditors had raised "substantial doubt" about its ability to survive outside bankruptcy if it fails to stem its losses and stop burning cash. LME aluminium stocks added 6,300 tonnes to a record 3.26 million tonnes - a reminder of weaker demand for the metal. "Over the past few days China has certainly been the main reason copper pushed up and copper is leading other metals," one LME trader said. Nickel was last bid at $US9,850 from $US9,825 at the close on Thursday, while LME stocks fell 54 tonnes to 99,270 tonnes, but these are still the highest level since June 1995. Lead traded at $US1,200 from $US1,184, zinc at $US1,245 from $US1,243 and tin drifted $US300 higher to $US11,200.

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