* Markets hopeful Fed will take dovish approach to tapering * Supply tight, China premiums steady * LME cash copper at 18-month high against benchmark By Maytaal Angel LONDON, Dec 16 (Reuters) - Copper hit its highest for a month and a half on Monday, with investors focused on tightness in nearby supply and expectation that the U.S. Federal Reserve will take a dovish stance even if it decides to trim economic stimulus. Three-month copper on the London Metal Exchange was up 0.28 percent at $7,275 a tonne by 1058 GMT, having earlier hit $7,288 a tonne, its highest since early November The Fed meets on Tuesday and Wednesday to discuss whether it should taper its $85 billion monthly bond-buying programme this week or wait until January or later. Global equity markets have slipped in the past two weeks on fears that the Fed could surprise investors by scaling back stimulus as early as this week, but copper has risen 3 percent over the same period. "Copper is up on the back of optimism that maybe tapering is going to be (just) $5-10 billion. But after the first quarter, if the data is good, the Fed is going to take an aggressive approach towards tapering, and that will negatively impact copper," Vva TRade analyst Naeem Aslam said. Also helping copper, latest daily London Metal Exchange data showed that stocks fell 3,825 tonnes to total 389,175 tonnes - their lowest since early February. The lack of supply has pushed the spread between cash copper and the three-month benchmark to $21 a tonne, near its loftiest in 18 months. Copper is up nearly 3 percent this month, with data from the Commodity Futures Trading Commission on Friday showing that investors have turned more upbeat on the metal, trimming net shorts or sell positions to their lowest level in five weeks. "As we had suspected, copper saw widespread covering of short positions in the week to Dec. 10. The continued price increase after the reporting date suggests that money managers have been continuing to bet on higher copper prices," Commerzbank said in a note. Flagging a brightening outlook for metals, Japanese manufacturing sentiment improved in the three months to December for a fourth straight quarter, the Bank of Japan's "tankan" survey showed, boding well for the government's stimulus policies aimed at beating 15 years of deflation. In the euro zone meanwhile, data showed December private sector business activity at its highest level since mid-2011, though the chasm between the bloc's two biggest economies widened. On the downside, growth in activity in China's factory sector slowed to a three-month low in December as reduced output offset a pick-up in new orders, a preliminary private survey showed on Monday. China, which consumes about 40 percent of the world's copper, is bracing to pay higher premiums to procure metal next year as global exchange stocks slump. In other metals, nickel, the worst performer on the LME base metals complex this year, was up 0.24 percent at $14,134 a tonne, bringing gains for the past two weeks to 5 percent. Flagging near-term downside price risk, however, China will raise the import tax on non-alloyed nickel such as refined metal to 1 percent in 2014 from zero in 2013..

Source