* LME copper at 27-mth peak; ShFE highest since March 2008 * LME cash/threes in first backwardation since August 2009 * China releases lead from stocks, sells zinc at discount By Nick Trevethan SINGAPORE, Nov 9 (Reuters) - Copper prices in London and Shanghai rallied to their highest since 2008, as the dollar halted two days of gains, luring speculators back to commodities. Three-month copper on the London Metal Exchange CMCU3 rose 1.3 percent to $8,775 a tonne, its highest since hitting a record $8,940 in July 2008. Benchmark third-month Shanghai copper SCFc3 rose almost 2 percent to 67,630 yuan, its highest since March 2008. By 0432 GMT, LME copper traded at $8,760.25. Earlier, prices dipped to $8,625 under pressure from a rise of 0.5 percent in the dollar, which has rallied for the past two sessions on worries about euro zone debt. But the greenback pared its gains to 0.25 percent versus the euro EUR= and 0.1 percent against a trade-weighted currency basket .DXY, helping lift a range of commodity markets, including base metals, gold, silver and palladium. "Yes the market is worried about the euro zone, but they are more worried about the Fed, and about copper supply. Despite the breakdown in the past few days, the short dollar-long commodity trade looks set to continue to be a money spinner," a dealer in Hong Kong said. Copper has held up in the face of a stronger dollar, with the U.S. currency supported by budget problems in Ireland and follow-through from last week's surprisingly strong U.S. jobs data. But analysts said the longer term outlook for the dollar was likely to remain weak. "Although QE2 and a weaker dollar environment will likely be supportive of commodity prices generally, we also expect the underlying fundamentals for the various base metals to continue exerting an influence on price behaviour," Standard Bank said in a note. Those concerns about supply showed up in the spread between cash and three month contracts MCU0-3, which flipped from contango to backwardation on Monday, for the first time in more than year. For a graphic, click: here Support came as a strike by union workers at Chile's Collahuasi, the world's No. 3 copper mine, headed into its fifth day with no sign of resolution. The mine's owners said output had not been affected but industry sources said that after a week, the strike would start to take effect. [ID:nN05111737] For a graphic on copper supply, click: r.reuters.com/req72q "Amid the lack of direction for much of the year, and times when commodities essentially behaved as a proxy for the strength of the dollar, it's heartening to note that the fundamentals also appear to have had an impact," Standard Bank said. "The best performing metals so far this year, namely tin, copper and nickel are also the metals which have seen the largest falls in on-warrant LME inventory. Copper and nickel inventories have both bucked recent seasonal trends, with copper inventories being drawn down every month in 2010, except January." The traditional pattern in copper is for falls in stocks in the first half and gains in the second. LME copper stocks have fallen by a third from highs earlier this year. Other metals also powered ahead, with LME zinc CMZN3 rising 2.1 percent to $2,530 and LME lead CMPB3 1.2 percent firmer at $2,534.25. China's State Reserves Bureau (SRB) will sell 34,500 tonnes of refined lead ingots on Nov 16, the country's top planning body, the National Development and Reform Commission, said. The auction will be the third sale of base metals reserves in as many weeks, after the government offered 96,000 tonnes of aluminium and 50,000 tonnes of zinc for sale. The release of metal is equivalent to twice the nation's imports in the first nine months of the year and 8 percent of the China's monthly production. [ID:nBJI002441] The SRB sold zinc stocks at around 19,700 yuan a tonne in a public auction in Beijing, a discount of around 1,000 yuan from futures prices. The zinc was sold in the morning session of the auction, and it will continue in the afternoon. The SRB plans to sell a total of 50,000 tonnes of zinc ingots on Tuesday. [ID:nBIG9ME60C] Base metals prices at 0432 GMT Metal Last Change Pct Move End 2009 YTD pct chg LME Cu 8760.25 100.25 +1.16 7375.00 18.78 SHFE Cu* 67530.00 1150.00 +1.73 59900.00 12.74 LME Alum 2442.25 13.25 +0.55 2230.00 9.52 SHFE Alum* 16945.00 100.00 +0.59 17160.00 -1.25 COMEX Cu** 396.30 1.05 +0.27 332.75 19.10 LME Zinc 2530.00 51.00 +2.06 2560.00 -1.17 SHFE Zinc 20740.00 435.00 +2.14 21195.00 -2.15 LME Nickel 24350.00 225.00 +0.93 18525.00 31.44 LME Lead 2534.25 30.25 +1.21 2432.00 4.20 LME Tin 26700.00 105.00 +0.39 16950.00 57.52 LME/Shanghai arb^ 772 Dollar/yuan 6.6639 \ 6.6644 ** 1st contract month for COMEX copper * 3rd contact month for SHFE aluminium, copper and zinc ^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month (Editing by Clarence Fernandez)

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