* U.S. non-manufacturing sector grows slower than expected
(Updates prices, adds detail and comment)
By Pratima Desai and Rebekah Curtis
LONDON, July 6 (Reuters) - Copper hit a one-week high on Tuesday, rising with shares, but the mood was wary as investors fretted over Europe's banking sector and sought clues on demand.
Benchmark copper on the London Metal Exchange traded at $6,666.25 a tonne, the highest since June 29. The key material used in the power and construction industries then pared gains to $6,633 a tonne at 1434 GMT, up from $6,469 at Monday's close.
Triggering gains was a rally on the Shanghai Stock Index in China, the world's top base metals consuming country.
"The Chinese exchanges have been so weak this year, if there is a bit of relief coming through in China that will help reduce people's fears of a more marked slowdown (there)," said Charles Kernot, an analyst at Evolution Securities.
He added that there was a lot of uncertainty in markets.
"One day it's all doom and gloom and the next day it 'wow, we're off to the races'," he said. "People aren't able to take a long or medium term view of prospects."
Also boosting the dollar-denominated metal, the U.S. currency fell broadly after a lower-than-expected reading on growth in the U.S. non-manufacturing sector raised concerns about the outlook for the economy.
Meanwhile, financial and commodity markets were still focused on the banking sector's stress tests after sources told Reuters European Central Bank President Jean-Claude Trichet will meet Europe's top banks to discuss the tests ahead of the publication of the results later this month.
Results of the tests, designed to show Europe's banks can cope with further economic shocks, will be published on July 23, French Economy Minister Christine Lagarde said.
FALLING STOCKS
Despite global economic concerns, traders say falling stocks in LME-registered warehouses will offer support.
Stocks of copper are down about 20 percent at 441,700 tonnes since the middle of February, while aluminium inventories have fallen to 4.4 million tonnes from the record high of above 4.64 million tonnes seen in January.
"LME copper stock falls have accelerated recently," VTB Capital said in a note. "We believe this reflects increased Chinese buying of LME metal, as current market conditions are very supportive for higher imports," the note added.
VTB said demand was also supported by a positive LME-Shanghai arbitrage and a growing backwardation in the Chinese copper market since early June.
Backwardation -- a premium for cash material over the three-month contract -- implies tightness in the market.
Three-month aluminium traded at $2,000 a tonne from $1,937 on Monday. The metal has been supported over the last year by financing deals which are said to have tied up more than 70 percent of LME stocks. It hit a one-week high of $2,004.75 a tonne.
Stocks of lead touched 193,000 tonnes on June 11, their highest since 2002. Since then they have fallen 3,650 tonnes -- one reason why prices of the battery material touched a one-week high of $1,805 a tonne on Tuesday. The battery material was at $1,795 a tonne from $1,765 on Monday.
Traders noted a dominant position holding between 50 and 80 percent of LME lead stock warrants and cash contracts.
Zinc also touched a one-week high, of $1,860, on arbitrage buying -- prices in London are below those in Shanghai. It traded at $1,851 a tonne from $1,807 on Monday.
Nickel fell to $18,545 a tonne, its lowest since June 9, on hopes for an end to a year-long strike at Vale's Sudbury, Ontario mining operations.
The metal traded at $19,100 a tonne from $18,650 at the close on Monday. Tin was at $17,600 from $17,300.
Metal Prices at 1438 GMT Metal Last Change Percent Move End 2009 Ytd Percent
move COMEX Cu 300.15 9.15 +3.14 334.65 -10.31 LME Alum 2001.00 64.00 +3.30 2230.00 -10.27 LME Cu 6633.00 164.00 +2.54 7375.00 -10.06 LME Lead 1790.00 25.00 +1.42 2432.00 -26.40 LME Nickel 18975.00 325.00 +1.74 18525.00 2.43 LME Tin 17425.00 185.00 +1.07 16950.00 2.80 LME Zinc 1846.00 39.00 +2.16 2560.00 -27.89 SHFE Alu 14810.00 0.00 +0.00 17160.00 -13.69 SHFE Cu* 52390.00 -30.00 -0.06 59900.00 -12.54 SHFE Zin 15290.00 145.00 +0.96 21195.00 -27.86 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Editing by Anthony Barker)
