Copper rallied nearly 5 percent and lifted other industrial metals on Monday as the dollar weakened and sentiment improved after a report that the U.S. government could increase its stake in Citigroup. European shares were higher, oil was up and the euro rose close to a two-week high against a broadly lower dollar after a source said the U.S. government could end up owning as much as 40 percent of the ailing Citigroup. Copper for three-months delivery on the London Metal Exchange rose as high as $3,300 a tonne and was at $3,235 a tonne by 1139 GMT, versus $3,150 a tonne on Friday, when it lost as much as 8 percent at one point. "The Citigroup announcement is producing a relief rally in stock markets. The dollar's falling and these factors are all supportive for metals," Calyon analyst Robin Bhar said. A weaker dollar makes copper and other dollar-denominated commodities cheaper for local currency holders. Bhar said a fall in copper inventories after Friday's big jump was also positive. Physical copper stocks in LME warehouses fell 950 tonnes, but stand at 544,650 tonnes, their highest in more than five years. In what could be a sign of improving demand in China, the world's top copper consumer, inventories of the metal in Shanghai fell 11 percent from a week earlier to 30,105 tonnes last week. The drop in inventories marks the first fall since mid-January, when stocks were just half that level. DEMAND WEAK However, demand for copper is still weak. "Things haven't really changed fundamentally in terms of demand being non-existent," Bhar at Calyon said. "Stocks -- even though they fell this morning -- are at a five-year high and are likely to increase further." Low demand has caused copper prices to collapse more than 60 percent since July, when they struck a record $8,940 a tonne. China's imports of refined copper in January fell 14.7 percent from December's all-time record due to holidays in the month, but imports surged 41 percent from a year earlier, because of attractive margins and possible government buying to boost reserves. "Some of the factories in China think that the current price is very low so they are building up their stocks," Shao Hebin, an analyst at Great Wall Futures, said. Low prices and tepid demand have forced China's central government to buy metals as reserves, as part of Beijing's plans to support smelters during the current slowdown. Industry sources said last week China's State Reserve Bureau (SRB) might have already contracted up to 240,000 tonnes of refined copper imports as part of a plan to buy 300,000 tonnes. China announced last week a broad outline of a support plan for its electronics and information technology sector, saying it would boost investment over the next three years. The picture in aluminium is equally gloomy, analysts say. "Prices are likely to remain range-bound in the short-term," analysts at Societe Generale said in a research note. "The weakness of consumption and the notable overhang by reported stocks will continue to make any ventures north of the top-end hard to sustain, while any declines below the lows we have already witnessed will most likely be met with support from a dramatic reduction in output." Three-month aluminium was at $1,310 a tonne from Friday's close of $1,305. Stocks of the energy-intensive metal are at a record high 3.16 million tonnes. Zinc edged up to $1,107.50 from Friday's close at $1,105 a tonne. Key stainless steel ingredient nickel rose to $9,600 from $9,495 a tonne. Lead eased to $1,028 from $1,030, and tin was lower at $10,500 from $10,525 a tonne. Metal Prices at 1139 GMT Metal Last Change Percent Move End 2008 Ytd Percent move COMEX Cu 141.40 0.00 +0.00 139.50 1.36 LME Alum 1320.00 15.00 +1.15 1535.00 -14.01 LME Cu 3286.00 136.00 +4.32 3060.00 7.39 LME Lead 1032.00 2.00 +0.19 999.00 3.30 LME Nickel 9525.00 -375.00 -3.79 11700.00 -18.59 LME Tin 10400.00 -125.00 -1.19 10700.00 -2.80 LME Zinc 1115.00 10.00 +0.90 1208.00 -7.70 SHFE Alu 11580.00 0.00 +0.00 11540.00 0.35 SHFE Cu* 27280.00 740.00 +2.79 23840.00 14.43 SHFE Zin 10230.00 130.00 +1.29 10120.00 1.09 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Additional reporting by Manolo Serapio Jr. in Manila, Editing by Sue Thomas)

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