* Fund buying boosts base metals prices * Chinese monetary policies eyed, Lunar New Year approaching * Copper, aluminium inventories fall but remain high (Recasts, adds comments, changes dateline from SINGAPORE) By Michael Taylor LONDON, Feb 2 (Reuters) - Copper rose on Tuesday, reversing earlier losses, as fund buying helped offset worries over rising inventories and further monetary tightening in China. But investors were cautious ahead the Lunar New Year holiday, which starts on Feb. 14, and will keep Chinese markets shut for a week. Many of China's factories also close and demand for the metal used in construction and power drops. By 1026 GMT, copper for three-month delivery MCU3 on the London Metal Exchange traded at $6,845 a tonne from $6,791 at the close on Monday and compared with a session low at $6,727. London copper hit a two-and-a-half month low at $6,600 on Monday, before turning around later in the session, after data showed U.S. manufacturing grew in January. [ID:nN01363414] "Funds have been strong buyers this morning," said David Thurtell, an analyst at Citigroup. "The ISM data appears to have restored some calm to the bulls who were unsettled by the sell-off of the past few weeks." Concerns about China tightening monetary policy remain after strong purchasing managers data on Monday, and as Australia surprised many by holding interest rates steady on Tuesday. [ID:nTOE61003S] [ID:nSGE61003K] Copper fell 8.5 percent last month, in part due to increasing worries about rising LME inventories, which indicate that demand outside China, the world's largest metals consumer, remains weak. The latest data showed copper stocks fell 2,375 tonnes to 541,150 tonnes but remain close to a more than six-year high. "Inventories are still very high -- copper close to six-year highs -- and this is dragging on sentiment," said Eugen Weinberg, an analyst at Commerzbank. "Going forward in two weeks, the Chinese go into the New Year and they will close all factories, so manufacturing will drop strongly," he added. "People are afraid of this, so are not taking positions or buying stocks before the New Year." INVENTORIES Aluminium MAL3 traded at $2,105 from $2,085. Inventories in the metal, used in transport and packaging, slipped 3,125 tonnes but are still at near record levels above 4.6 million tonnes. A large portion of those stocks are tied up in finance deals, to release cash for producers and to earn banks higher returns than they would get in money markets. [ID:nGEE5BA277] Steel making ingredient nickel MNI3 traded at $18,250 from $18,000, while zinc MZN3 traded at $2,162 a tonne from $2,145. Anglo-Swiss miner Xstrata Plc (XTA.L) reached a tentative deal with unionised workers at its Canadian nickel mining operations in Sudbury, Ontario, on Monday, averting a strike that would have all but shut down base metals production in the Sudbury region. [ID:nN01179992] The agreement was reached in the shadow of a strike by more than 3,000 workers at Brazilian miner Vale's (VALE5.SA) Sudbury nickel and copper operations, and smaller strikes at Vale's Voisey's Bay mine in Eastern Canada and at its Port Colborne, Ontario, processing operations. The Vale Sudbury strike is now in its seventh month, with no signs that bargaining will restart any time soon. Some analysts have speculated a deal at Xstrata could spur Vale and the United Steelworkers union to restart talks. [ID:nN01179992] Battery material lead MPB3 was at $2,088 from $2,045, while tin MSN3 was at $16,400 from $16,150. Investors are keeping a close eye on movements in cancelled warrants -- material already earmarked for delivery from LME warehouses. On Monday, lead cancelled warrants were at 15,650 tonnes compared with 75 tonnes on Dec. 17. "The auto sector should be very positive for lead, plus the issue of constrained mine supply," said David Wilson, an analyst at Societe Generale. "We do expect consumption to be very positive this year -- particularly driven by the Chinese auto sector, and a rebound in U.S. auto production."

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