* Investors worry about tightening of credit * Tightness in physical supply in China, despite high imports By Rujun Shen and Jacqueline Wong SHANGHAI, July 23 (Reuters) - Shanghai copper ended up 1 percent on Thursday, easing from a nine-month high hit earlier on expectations of improved demand, but investors questioned the sustainability of the rally. Supporting sentiment, the dollar hovered near a seven-week low against a basket of currencies, while investors kept an eye power problems at Chile's Collahuasi copper mine, one of the country's top producers.ID:nN22313043] "It is a bullish factor in the short term, although so far we haven't seen reports of a large-scale impact," said Lin Yuhui, deputy general manager of Jinhui Futures. Shanghai's benchmark third-month copper futures contract closed up 1 percent at 43,420 yuan a tonne, easing from 44,060 yuan, highest since Oct. 14, 2008. The most-active contract for November delivery rose 0.9 percent to 43,390 yuan. Copper for three-month delivery on the London Metal Exchange shed $30 to $5,470 a tonne by 0701 GMT, easing from $5,540 earlier in the day, just a shade off the nine-month high of $5,550 hit in the previous session. Shanghai's near-month copper contract is at a premium of about 200 yuan over the benchmark, reflecting tightness in physical supply, traders and analysts said. "Theoretically, after massive imports of copper, there shouldn't be a premium in physical prices. But traders apparently are unwilling to release their stocks, with the expectation of price rises in the future," said Zhu Bin, an analyst with Nanhua Futures. Standard Chartered said in a research note that trading houses has played an important role in driving up imports as the government stockpile buying ebbed. "We expect trading houses to keep stockpiling commodities when arbitrage opportunities improve in H2 on inflationary concerns and hopes that demand will pick up again in Q4," it said. Some analysts said the rally may not be sustainable, worrying that it has been driven by speculation and floods of liquidity as a result of record rates of lending. "Chinese investors are questioning how solid the rally is, given that in a large part it has been driven by speculative buying," said Zhu. The central bank has signalled that it was shifting policy towards tightening liquidity in its open market operations since late June, though analysts think that the likelihood of benchmark interest rates being raised remains distant. LME aluminium edged down $4 to $1,740 a tonne, after rising to a seven-month high of $1,755 a tonne in the previous session, and Shanghai aluminium rose 0.6 percent to 13,895 yuan. LME's aluminium stockpile ticked up 125 tonnes to a record high above 4.5 million tonnes. But such high stocks will not prevent a price rise, as a lot of the tonnage is tied up in deals to release cash for producers and as the demand outlook improves, analysts said. Norwegian aluminium producer Norsk Hydro said users of aluminium products are no longer staying out of the market, but it remained cautious on prospects for the second half of the year. Base metals prices at 0701 GMT Metal Last Change Pct Move End 2008 Pct chg 09 LME Cu 5470.00 -30.00 -0.55 3060.00 78.76 SHFE Cu* 43420.00 440.00 +1.02 23840.00 82.13 LME Alum 1740.00 -4.00 -0.23 1535.00 13.36 SHFE Alum* 13895.00 80.00 +0.58 11540.00 20.41 COMEX Cu** 251.80 0.00 +0.00 139.50 80.50 LME Zinc 1680.00 -6.00 -0.36 1208.00 39.07 SHFE Zinc 13785.00 70.00 +0.51 10120.00 36.22 LME Nickel 16175.00 -75.00 -0.46 11700.00 38.25 LME Lead 1710.00 6.00 +0.35 999.00 71.17 LME Tin 13925.00 -50.00 -0.36 10700.00 30.14 LME/Shanghai arb^ 292 Dollar/yuan 6.8301 \ 6.8314 ** 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 Ben Tan)

Source