* Official China PMI seen barely expanded in May * One worker killed at new collapse at Grasberg mine * Lead benchmark spread goes into backwardation By Eric Onstad LONDON, May 31 (Reuters) - Copper fell on Friday as investors closed out positions ahead of a key factory activity report from top metals consumer China and as the dollar firmed, but losses were cushioned after another mine tunnel collapse in Indonesia. The benchmark industrial metal, however, was still on track to end May almost 3 percent higher after a three-month slide. The market was nervous about China's official Purchasing Managers' Index, due out on Saturday, which was likely to show manufacturing activity barely expanded in May, according to a Reuters poll. Many investors were not taking chances after an initial private-sector PMI survey last week showed a contraction for the first time in seven months, fuelling a sell-off in commodities and equities. "I don't think anyone is too excited about going into the weekend particularly long," said analyst George Adcock at broker Marex Spectron in London. "Unless you're a big fund specialising in what you think about China or you're taking a much broader view, you'd likely want to go into the figures neutral and see how the market reacts to them." Three-month copper on the London Metal Exchange shed 0.8 percent to $7,264 a tonne by 0951 GMT, erasing Thursday's gains. The metal has gained nearly 3 percent for the month. On the Shanghai Futures Exchange, the most-traded September copper contract rose nearly 1 percent to close at 52,720 yuan a tonne. Copper got support after a tunnel collapse critically injured a worker at Freeport McMoRan Copper and Gold Inc's Indonesian Grasberg mine, a union official said, calling on miners to stop work. This would be the second serious accident at the remote Papua complex, the world's second biggest copper mine, in just over two weeks after 28 people were killed in another collapse. While copper prices rebounded this month from the year's lows in April, backed by supply outages and improved demand in top consumer China, a rally has eluded the metal due to persistent doubts on the outlook for the global economy. "For a lot of investors, the fundamentals of copper are still not compelling enough to give it a rally that's sustainable," said Sijin Cheng, commodities analyst at Barclays Capital. "People are still trading it as a reflection of their take on the macroeconomic environment which has been very confusing lately." LEAD SHORTAGES FUEL PRICE Lead prices were flat at $2,170 a tonne, but the battery material was the best performer of the month, climbing 7 percent as inventories declined. LME lead stocks fell by another 2,750 tonnes on Friday to 219,475 tonnes, bringing the erosion to 31 percent this year. Lead inventories currently available to consumers, however, is much smaller since 76 percent of the stocks are cancelled, or earmarked for delivery. The shortage of lead supplies has pushed the benchmark spread into backwardation, where the cash price enjoys a premium over the three-month price, for the first time in about six months. "The short end of the lead forward curve has shifted into backwardation for the first time since December, which points to a tighter market situation," Commerzbank said in a note. "The global lead market was already in supply deficit in the first three months of the year." Metal Prices at 0958 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T Metal Last Change Pct Move End 2012 Ytd Pct move COMEX Cu 3.29 -0.02 -0.69 365.25 -99.10 LME Alum 1902.75 -5.25 -0.28 2073.00 -8.21 LME Cu 7267.50 -52.50 -0.72 7931.00 -8.37 LME Lead 2169.25 -0.75 -0.03 2330.00 -6.90 LME Nickel 14781.00 -19.00 -0.13 17060.00 -13.36 LME Tin 20933.00 -167.00 -0.79 23400.00 -10.54 LME Zinc 1908.75 -3.25 -0.17 2080.00 -8.23 SHFE Alu 14830.00 165.00 +1.13 15435.00 -3.92 SHFE Cu* 52890.00 520.00 +0.99 57690.00 -8.32 SHFE Zin 14720.00 125.00 +0.86 15625.00 -5.79 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

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