* More downside pressure on copper, aluminium seen in H2 -Goldman
* China to ramp up fiscal support for metals
* Malaysia extends bauxite mining ban until year-end (Adds comment, detail; updates prices)
By Melanie Burton
MELBOURNE, Sept 7 (Reuters) - London copper rose to its highest in two weeks on Wednesday as disappointing U.S. economic data pushed the dollar lower, spurring demand for commodities.
U.S. service sector activity slowed to a 6-1/2-year low in August, pointing to fading economic growth that dragged on the greenback and further diminished prospects for a U.S interest rate hike in September.
The dollar stayed weak despite comments from a Federal Reserve official that a rate increase was on the table, although not necessarily at a meeting this month.
A weaker dollar makes commodities more affordable for buyers paying with other currencies. But analysts did not expect the dollar effect on demand to last, given a flood of new mine supply.
“We reiterate our second-half 2016 view that copper and ... aluminium are expected to move lower on a combination of slowing demand growth and rising supply, and zinc and nickel set to rise on idiosyncratic supply factors,” Goldman Sachs said in a note.
London Metal Exchange copper had climbed 1 percent to $4,666 a tonne by 0709 GMT, after closing little changed in the previous session.
Prices topped out at $4,683, the highest since Aug. 24, and have marked out a floor above $4,600, a nine-week low hit last week.
Ahead of options expiry later in the session, positioning had accelerated copper’s short-covering rally this morning, a broker said.
“All about September expiry today and already the complacent shorts have been rudely awoken,” Matt France, head of institutional sales for metals in Asia at Marex Spectron, said in a report.
Shanghai Futures Exchange copper ended the session up 0.6 percent at 36,750 yuan ($5,514) a tonne.
ShFE nickel was resilient in the face of steep declines in other materials used by China’s steel sector after steel prices plunged. ShFE zinc slipped 0.4 percent.
Set to support metals prices in the medium term, China will step up proactive fiscal policy efforts now that commodity prices are relatively low, the State Council said.
The announcement boosted infrastructure stocks on Wednesday.
Metals prices are particularly sensitive to China’s credit cycle.
Meanwhile, Malaysia extended a moratorium on bauxite mining to the end of the year, from Sept. 14, and said the government could stretch the ban by another six months if the current high stockpiles of the aluminium-making commodity were not cleared by Dec. 31.
Also, German industrial production unexpectedly fell in July, sending a negative signal at the start of the third quarter as it recorded its steepest fall in 23 months.
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
$1 = 6.6698 Chinese yuan renminbi $1 = 6.6651 Chinese yuan renminbi Reporting by Melanie Burton; Editing by Christian Schmollinger and Joseph Radford