MARKETS-METALS (UPDATE 3) * Focus on capacity restarts, interest rates * Lead cancelled warrants undermine sentiment * Coming up:U.S. Feb durable goods orders at 1230 GMT (Recasts, adds comment/details, pvs Shanghai) By Pratima Desai LONDON, March 24 (Reuters) - Prices of industrial metals fell on Wednesday as the dollar rose against the euro and expectations are for further losses because of market surpluses. Benchmark lead on the London Metal Exchange fell to $2,042, its lowest since Feb. 11 as the market fretted about stocks in LME warehouses, at their highest since the middle of 2003. Three-month copper traded at $7,360 a tonne at 1109 GMT from $7,440 a tonne at the close on Tuesday. The metal, used in power and construction, is down more than 5 percent since the year high of $7,796 a tonne hit on Jan. 7. The euro tumbled to a 10-month low against the dollar, knocked by uncertainty about aid for debt-stricken Greece ahead of an EU summit on Thursday and Friday. "The direction for base metals is going to be down because of a whole range of things. Broadly speaking, we see markets in surplus this year, even though it looks as if LME stocks are topping out," said Stephen Briggs, analyst at RBS. "The dollar's firmer trend against the euro will continue, focus is shifting to capacity restarts and we are looking at a trend of rising interest rates in different places and times." A strong dollar makes metals more expensive for holders of other currencies and a persistently higher dollar could prompt producers to raise prices as they seek to protect margins. Worries that further policy tightening in China, the world's largest consumer of industrial metals, could put a brake on demand have taken their toll in recent weeks. "The timing and extent of China's fiscal tightening remains the key uncertainty for commodities," Barclays Capital said in a note. "China ... is likely to continue setting the tone for many markets in (the second quarter). TAGGED However, opinion about LME stocks is divided. Some see recent falls as a source of strong support. LME stocks of copper are down nearly 32,000 tonnes since March 1 to 520,450 tonnes -- the lowest since Jan 11. Aluminium stocks are down 47,850 tonnes since hitting a record above 4.64 million tonnes on Jan 20. Aluminium, used in transport and packaging, was at $2,233 from $2,256 on Tuesday, zinc at $2,216 from $2,240 and tin at $17,450 from $17,650. Lead was at $2,050 a tonne from $2,104 on Tuesday. The battery material is under pressure from LME stocks, which, at 171,600, are four times the level seen in late 2008. A fall in cancelled warrants -- material already tagged for delivery -- to 11,425 tonnes from 15,450 in early February has also undermined sentiment in the lead market. "The quantity of lead stocks being mobilised for delivery has gradually fallen, though this is mild when compared with the increase in cancelled copper warrants," National Australia Bank said in a note. Stainless steel ingredient nickel was at $22,214 a tonne from $22,495 on Tuesday. Eyes are on a dominant position that holds between 50 to 80 percent of LME stock warrants and cash contracts, which has raised concern about near term supply. This has driven the the fall in the contango -- or discount -- between the cash and the three-month contracts, which has fallen to around $40 a tonne from $80 early in March. Metal Prices at 1055 GMT Metal Last Change Percent Move End 2009 Ytd Percent move COMEX Cu 333.30 -3.65 -1.08 334.65 -0.40 LME Alum 2224.00 -32.00 -1.42 2230.00 -0.27 LME Cu 7352.00 -88.00 -1.18 7375.00 -0.31 LME Lead 2042.00 -62.00 -2.95 2432.00 -16.04 LME Nickel 22130.00 -365.00 -1.62 18525.00 19.46 LME Tin 17400.00 -250.00 -1.42 16950.00 2.65 LME Zinc 2206.00 -34.00 -1.52 2560.00 -13.83 SHFE Alu 16525.00 -85.00 -0.51 17160.00 -3.70 SHFE Cu* 59300.00 -260.00 -0.44 59900.00 -1.00 SHFE Zin 18375.00 -140.00 -0.76 21195.00 -13.31 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07 (Reporting by Pratima Desai; editing by Amanda Cooper)

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