Shanghai copper, zinc limit up after LME leap

* Shanghai copper, zinc limit up, but rally unsustainable

* LME slips lower after New Year surge, data to depress

* Nickel down almost 5 pct after Jinchuan says raising output (Updates to midday)

SINGAPORE, Jan 5 - Shanghai copper and zinc futures stormed 6 percent higher on their first trading day of the New Year, chasing sharp gains in London while the Chinese exchange was shut for year-end holidays.

But the rallies in both markets could be a false dawn and just the first of a series of short-lived rallies in what analysts see as a volatile first half of the year -- nickel has already relinquished over a third of Friday's 13 percent rise.

"This feels like a false rally. Commodities will gain strength and may come out of the downturn quicker than equities but not perhaps until the second half," ANZ's senior commodities analyst, Mark Pervan, said.

"The next set of data will cool down the party -- we have U.S. payrolls on Friday, which will be pretty awful, as well as auto sales, factory orders and of course the the start of the reporting season looms. All of that means more surprises are likely on the downside."

The datafest kicks off with U.S. auto sales for December on Monday, with analysts looking for 10 million units. Tuesday sees November durable goods and factory orders and the week ends with December non-farm payrolls.

But Pervan added that a rebound, possibly around mid-year, could be sharper than many in the market expect.

"Mid-year is a viable turning point. By then, leading indicators should start to pick up and the stimulus effects, especially from China, could result in a very positive response from the market."

Shanghai's benchmark third month copper contract jumped 6 percent or 1,400 yuan from its settlement on Dec 31 to 24,810 yuan ($3,637) per tonne, after London Metal Exchange futures jumped 5.6 percent on Friday to $3,231. On Monday, LME copper fell 1.7 percent to trade at $3,175 by 0355 GMT.

Copper prices lost more than half their value in 2008, for the market's first annual loss since 2001.

"I am a little surprised prices are as steady as they are ... but the rally in metals doesn't look sustainable. We are looking for some very volatile trading in the shorter term," an LME trader in Hong Kong said.

"From a fundamental perspective there is still not much reason to buy metals at these prices and I think copper could see another pullback to $2,800, where it should form a base."

Dealers said investors remained focused on the weak demand outlook, but news that Jinchuan Group Ltd, China's top nickel producer, plans to increase output of nickel, copper and cobalt in 2009, would also weigh on sentiment.

Jinchuan expects to produce 125,000 tonnes of nickel this year, up nearly 20 percent from 104,600 tonnes in 2008, the company said in a statement on its website (www.jnmc.com).

Nickel was quoted 4.9 percent lower at $12,550 after surging nearly 13 percent on Friday.

Traders said the move by Jinchuan was surprising given the weak market -- prices have fallen as much as 80 percent from record highs in May 2007 -- but might be an attempt by the producer to maintain pressure on its competitors and win more market share.

Jinchuan also plans to produce 400,000 tonnes of copper, one third higher than in 2008, and 7,800 tonnes of cobalt, 22 percent higher than the previous year.

Shanghai zinc also rallied 6 percent to its upside limit of 10,550 yuan and aluminium rose 2.1 percent to 11,785 yuan.

LME aluminium fell $10 to $1,560, while zinc lost 2.3 percent to $1,250. Metals prices at 0355 GMT Metal Last Change Pct Move End 2008 Pct chg 08 LME Cu 3175.00 -56.00 -1.73 3060.00 3.76 SHFE Cu* 24810.00 970.00 +4.07 23840.00 4.07 LME Alum 1560.00 -10.00 -0.64 1535.00 1.63 SHFE Alum* 11785.00 245.00 +2.12 11540.00 2.12 COMEX Cu** 144.40 0.00 +0.00 139.50 3.51 LME Zinc 1250.00 -30.00 -2.34 1208.00 3.48 SHFE Zinc 10550.00 430.00 +4.25 10120.00 4.25 LME Nickel 12550.00 -650.00 -4.92 11700.00 7.26 LME Lead 1080.00 -10.00 -0.92 999.00 8.11 LME Tin 11300.00 -325.00 -2.80 10700.00 5.61 LME/Shanghai arb^ 634 Dollar/yuan 6.8280 \ 6.8290 ** 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