* China copper stocks watched for demand clues
* Tight LME market can be seen in premium for cash copper
* Aluminium stalls on prospect of Chinese production restarts (Adds closing prices)
By Pratima Desai
LONDON, April 19 (Reuters) - Copper prices rose to a three-week high on Tuesday, reversing earlier losses after weak U.S. data pushed the dollar lower and reinforced growing optimism over stronger demand from top consumer China.
Benchmark copper on the London Metal Exchange ended up 2.3 percent at $4,936 a tonne from an earlier high at $4,947 and a low of $4,782.
Traders said copper rose as the dollar fell after U.S. housing data for March came in below consensus, supporting the idea that the U.S. central bank would hold off raising interest rates this month.
A lower U.S. currency makes dollar-denominated metals cheaper for non-U.S. firms; a relationship used by funds to generate buy and sell signals from numerical models.
Copper has been boosted in recent days by economic data showing a surge in new debt had fuelled a recovery in industrial production and investment in China.
“The data supports our view that we will have a modest pick up in activity this year,” said Caroline Bain, commodities economist at Capital Economics.
“We have to be a little bit cautious as the first quarter is always quite distorted in China because of the new year holiday, but the March data definitely showed a pick-up on most fronts.”
Slowing demand growth in China, which accounts for nearly half of global consumption, estimated at about 22 million tonnes this year, was behind copper’s tumble to $4,318 a tonne in January, its lowest since May 2009.
To assess demand traders are watching for changes in copper stocks in China - estimated at about 600,000 tonnes in bonded warehouses and more than 330,000 tonnes in warehouses monitored by the Shanghai Futures Exchange.
In the very near term worries about tighter supplies on the LME market can be seen in the premium for cash metal over the three-month future, which has risen above $20 a tonne from levels around $14 a week or so ago.
Aluminium gained 1.1 percent to $1,587, its highest since March 8.
But Chinese exports and oversupply are expected to weigh on prices over the coming weeks and months as recent gains entice Chinese smelters to restart aluminium output.
That prospect has seen aluminium prices in Shanghai stall at about 12,000 yuan a tonne in recent days.
“At these prices, we estimate less than 18 percent of Chinese capacity is facing real margin pressure,” Citi said in a note. “We expect China to have an effective surplus of about 3 million tonnes this year, much of which we believe could be exported in the form of products.”
Zinc was up 2.3 percent at $1,937 a tonne, lead gained 2.7 percent to $1,761, tin rose 0.6 percent to $17,150 and nickel added 1.3 percent to $9,270.
Three month LME copper
Most active ShFE copper
Three month LME aluminium
Most active ShFE aluminium
Three month LME zinc
Most active ShFE zinc
Three month LME lead
Most active ShFE lead
Three month LME nickel
Most active ShFE nickel
Three month LME tin
Most active ShFE tin (Editing by Greg Mahlich, editing by David Evans)