MARKETS-METALS (UPDATE 3) * Market awaits return of Chinese players * Stronger dollar halts metals rally * Copper stocks highest since 2003 (Adds comment/details, changes dateline from SINGAPORE) By Maytaal Angel LONDON, Feb 18 (Reuters) - Copper prices edged lower on Tuesday under pressure from a stronger dollar and a rise in London inventories, with markets waiting for Chinese markets to reopen after the New Year holiday for clues on direction. Benchmark copper for three-months delivery on the London Metal Exchange traded at $7,099 a tonne at 1028 GMT from a close of $7,130 on Wednesday, when the metal used in power and construction touched a three-week high of $7,240. "The main market driver is the stronger dollar, the stock gain doesn't help," said Steve Hardcastle, trader at Sucden Financial. "Prices are a little bit on the high side but I'm concerned about what the Chinese will do, they should be buyers but we just don't know how they will react." Chinese markets, closed this week for New Year holidays, did not have the chance to sell in response to Beijing's move late last Friday to increase bank reserve ratios in a bid to combat inflation. On the other hand, LME copper prices are around 3 percent higher than when Shanghai shut last week, suggesting the Chinese could return as buyers, especially as China's economic growth is expected to remain strong this year. On the downside, the dollar edged close to a seven-month high against a currency basket on Thursday, making dollar-priced metals more expensive for non-U.S. investors. "We'll see further pressure on prices in coming months. The potential for rate hikes ... will be important for the fund aspect of commodity investment as people move out of non-yielding assets in search of higher returns," said Daniel Major, analyst at RBS Global Banking & Markets. EARMARKED Also weighing on copper, LME copper stocks rose 5,175 tonnes to 555,075, the highest since October 2003. Cancelled warrants -- material earmarked for delivery out of warehouses -- fell to 15,250 tonnes from 16,900 the previous day. Prices of copper and other metals have been gaining traction in recent weeks thanks the rise in cancelled warrants, which participants believe indicates a pick up in real demand outside China. For a graphic of the ratio of cancelled copper warrants to total stocks, see: http://graphics.thomsonreuters.com/gfx/NTrv_20101702102016.jpg In other metals traded, aluminium, used in transport and packaging, was at $2,100 a tonne from $2,122. LME aluminium stocks rose 3,900 tonnes to total 4.6 million tonnes - near record levels, while cancelled warrants fell to 289,425 tonnes from 293,175 tonnes. However, cancelled warrants remain near their highest ever levels, indicating demand is increasing. Zinc was at $2,271 from $2,300, while battery material lead was at $2,255.50 from $2,290. Zinc stocks fell 75 tonnes to 541,300 tonnes but the fall did little to combat the previous day's rise of nearly 40,000 tonnes, which traders believe was sparked in part by tightness around the May prompt date. "It's very much speculation at the moment, but I think it's something to do with the tightening market conditions. We also hear that more metal is likely to roll in," a trader in Singapore said. Tin was at $16,650 a tonne from $16,750, and nickel was at $20,050 from $20,140. Metal Prices at 1026 GMT Metal Last Change Percent Move End 2009 Ytd Percent move COMEX Cu 320.25 -3.70 -1.14 334.65 -4.30 LME Alum 2097.00 -25.00 -1.18 2230.00 -5.96 LME Cu 7091.00 -39.00 -0.55 7375.00 -3.85 LME Lead 2249.00 -41.00 -1.79 2432.00 -7.52 LME Nickel 19900.00 -240.00 -1.19 18525.00 7.42 LME Tin 16600.00 -150.00 -0.90 16950.00 -2.06 LME Zinc 2267.00 -33.00 -1.43 2560.00 -11.45 SHFE Alu 16825.00 185.00 +1.11 17160.00 -1.95 SHFE Cu* 56410.00 1020.00 +1.84 59900.00 -5.83 SHFE Zin 18345.00 270.00 +1.49 21195.00 -13.45 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

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