* Dollar broadly firmer after Fed discount rate hike * Fund buying helps base metals' partial recovery * Investors await China's return from New Year holidays (Recasts, updates official prices, adds detail) By Michael Taylor LONDON, Feb 19 (Reuters) - London Metal Exchange copper fell as much as 2 percent before cutting losses on Friday, as fund buying helped offset the effects of a firmer dollar after the U.S. Federal Reserve raised its discount rate. Benchmark copper for three-month delivery MCU3 on the London Metal Exchange traded at $7,223 a tonne from a last bid at $7,260 on Thursday. It earlier hit a low of $7,115. "To a large degree it is the Fed move," said Daniel Brebner, London-based metals analyst at Deutsche Bank. "There is a lot of scepticism that there is significant sustainability with respect to the recovery -- that it is quite dependent on a combination of low interest rates or fiscal policies." The dollar leapt and the euro hit a nine-month low after the Fed said it was raising the interest rate it charges banks for emergency loans, signalling it was starting to normalise monetary policy. [USD/] [ID:nSGE61I036] A strong U.S. currency makes metals priced in dollars more expensive for holders of other currencies. "Yesterday's discount rate hike by the Fed weighs on base metals via the firmer U.S. dollar," Commerzbank said in a note. "We do not expect that the Fed's move will have the same impact as China's measures to cool down its partly overheated economy could have." Traders at the LME, who had to contend with a number of children enjoying school holidays at the exchange, said fund buying continued to support base metal prices at lower levels. This was despite analysts' concerns that relatively cheap borrowing rates could be ending, and copper prices at $6,500 a tonne would best reflect current fundamentals. BRIGHTER On Thursday, the red metal, used in power and construction, hit a three-week high at $7,336.00 after strong regional manufacturing data in the United States pointed to brighter economic prospects. A combination of fund buying, Chinese buying, a weaker dollar, and improving macro data, helped copper rise 140 percent last year, despite fundamentals remaining relatively weak. Highlighting weak demand outside China, the world's largest metals consumer, copper stocks fell 300 tonnes but remain near six-year highs at 554,775 tonnes. Aluminium MAL3 traded at $2,105 a tonne in LME rings versus $2,114. LME inventories for the metal, used in transport and packaging, eased 7,025 tonnes to remain near record levels at about 4.6 million tonnes. A large portion of those aluminium 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] Boosting sentiment however, is a recent rise in cancelled warrants -- material earmarked for delivery from LME warehouses. On Thursday, aluminium cancelled warrants were at 301,725 tonnes compared with 243,175 tonnes on Jan. 19. "The mistake would be to read too much into this and say 'we're getting this huge increase in re-stocking'," said Deutsche's Brebner. "The reality is tepid, timid, entry of buying on a hand-to-mouth basis by manufacturers." In related news, Goldman Sachs (GS.N) plans to buy U.S.-based warehouse and logistics company Metro International Trade Services, a Goldman Sachs spokesman said. [ID:nSGE61I04Z] Among other base metals, steel making ingredient nickel MNI3 traded at $20,325 a tonne in LME rings from $20,450 while battery material lead MPB3 was at $2,319 from $2,319. Zinc MZN3 traded at $2,290 a tonne in LME rings from $2,310 and tin MSN3 was at $16,940 from $17,050. Investors are keeping close tabs on operations at Teck Resources' (TCKb.TO) Red Dog mine in Alaska, after environmental groups appealed against a permit issued by the U.S. Environmental Protection Agency on Wednesday. [ID:nN17111233] For the latest on miner Anglo American, click [ID:nLDE61H1AM] For a story on a possible LME-Baltic Exchange joint venture, click on [ID:nLDE61I197] Metal Prices at 1313 GMT Metal Last Change Pct Move End 2009 Ytd Pct move COMEX Cu 326.30 -2.20 -0.67 332.75 -1.94 LME Alum 2098.00 -16.00 -0.76 2230.00 -5.92 LME Cu 7202.00 72.00 +1.01 7375.00 -2.35 LME Lead 2301.00 -18.00 -0.78 2432.00 -5.39 LME Nickel 20240.00 -210.00 -1.03 18525.00 9.26 LME Tin 16800.00 -250.00 -1.47 16950.00 -0.88 LME Zinc 2283.00 -27.00 -1.17 2560.00 -10.82 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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