* LME copper up, eyes nine-month peak; dollar in focus
* Two players hold greater than 80 percent of copper stockpile
(Updates prices, adds quotes, details throughout)
By Nick Trevethan
LONDON, July 21 (Reuters) - London copper rose on Tuesday on improving economic sentiment and fresh worries about a potential supply squeeze, although hopes for a recovery were tempered by gains in the dollar.
The U.S. currency edged higher as caution set in before Fed chairman Ben Bernanke's twice-yearly testimony on the economic outlook and monetary policy before Congress at 1400 GMT.
"This is a summer of content. Markets are taking heart from the dollar story, and we are also seeing that in gold," said Nick Moore, analyst at RBS.
Copper on Monday touched a nine-month of $5,464.75 a tonne, responding to a plunge in the dollar which makes buying the metal cheaper for holders of other currencies. Hefty Chinese buying has given weight to the metal's gains.
"China data is coming up and although we have seen the preliminary trade numbers, the final data will remind the market just how huge China's imports have been."
Copper for three-month delivery on the London Metal Exchange pared early gains that saw prices touch $5,420.50 a tonne, to end the second rings at $5,355. Copper was last bid at $5,345 on Monday.
"We'll be keeping an eye on the dollar as Bernanke speaks. That, as much as anything will be driving things this week," a London Metal Exchange dealer said.
"The data outlook for the next couple of days is a little slim and without direction from macro numbers, we will bob around in the wake of the greenback."
Data on Wednesday sees Chinese final commodity trade numbers but the flow of numbers picks up towards the end of the week with Euro zone purchasing manager data and Germany's IFO business survey.
SENTIMENT SUPPORTS
The mood in the rings was upbeat during midsession dealing, but traders said turnover was limited and worries persisted about dominant positions.
According to latest LME data two unrelated players hold a minimum of 80 percent of available copper warrants, and possibly the entire 266,425-tonne stockpile between them.
"We seem to be holding the gains from Monday, but copper is finding resistance around $5,450," an LME dealer at an international bank in London said.
"Sentiment is still supportive, and although the recent tightness has eased, people are still nervous it may come back."
Cash copper prices flipped back into a discount, or contango, to the benchmark three-month price on Monday, having spent most of last week at a premium. On Tuesday the spread was $11 contango.
"Summer was supposed to be quiet with prices lower, so if it's like this now, the fourth quarter could be even better," an LME floor trader said.
Asian metals prices eased with Shanghai copper off a nine-month high hit on Monday, paring the 11 percent gains made in a rally over the previous five sessions.
"Buyers in the Far East had been waiting for dips to buy. That opportunity hasn't come so they must be getting anxious. Once they have run down stocks they will be forced to come to the market whatever the price," the LME dealer said.
LME aluminium rose $10.50 to $1,720.50.
"In aluminium, short-term players have been happy to sell just above here -- looking to pick tops -- and the market appears to be back to buying on dips," the LME dealer said.
Stocks of the metal saw a hefty 35,000-tonne rise to a fresh record high at almost 4.6 million tonnes, about six weeks of global consumption.
The less-traded metals ticked lower with nickel down 2.2 percent at $15,875 and lead half a percent weaker at $1,695.
Metal Prices at 1217 GMT Metal Last Change Percent Move End 2008 Ytd Percent
move COMEX Cu 245.50 -0.50 -0.20 139.50 75.99 LME Alum 1727.00 19.00 +1.11 1535.00 12.51 LME Cu 5410.00 65.00 +1.22 3060.00 76.80 LME Lead 1695.00 -9.00 -0.53 999.00 69.67 LME Nickel 15875.00 -350.00 -2.16 11700.00 35.68 LME Tin 13825.00 -175.00 -1.25 10700.00 29.21 LME Zinc 1645.00 -22.00 -1.32 1208.00 36.18 SHFE Alu 13835.00 -110.00 -0.79 11540.00 19.89 SHFE Cu* 43020.00 -490.00 -1.13 23840.00 80.45 SHFE Zin 13715.00 -165.00 -1.19 10120.00 35.52 ** 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 Michael Taylor; Editing by Keiron Henderson)
