* Copper failed to close above 100-day moving average
* Fundamentals still weak, weigh on industrial metals
* Higher zinc prices could see higher Chinese output (Adds closing prices, copper stocks)
By Pratima Desai
LONDON, June 7 (Reuters) - Copper fell on Tuesday as funds reversed bets on higher prices, but a softer dollar is expected to offset some of the negative sentiment created by weak demand growth in top consumer China.
Benchmark copper on the London Metal Exchange ended down 2.6 percent at $4,568 a tonne. The metal used widely in power and construction touched $4,748 a tonne on Monday, its highest since May 12.
The dollar was hovering near four-week lows against a basket of currencies after Fed Chair Janet Yellen gave no fresh hints on Monday about the timing of rate rises.
A lower U.S. currency makes dollar-denominated commodities cheaper for non-U.S. firms; a relationship used by funds to generate buy and sell signals from numerical models.
Traders said funds were cutting long positions after copper prices on Monday failed to close above the 100-day moving average, currently around $4,720. They expect weak demand fundamentals to cap prices over the rest of 2016.
“Chinese manufacturing is not picking up momentum, so demand is not picking up and there is no reason for copper prices to rise,” said Julius Baer analyst Carsten Menke.
Clues to Chinese growth and demand will comes from trade data due Wednesday and investment and industrial production numbers over the weekend.
Also undermining copper was rising stocks in LME approved warehouses, which have jumped 21 percent to above 196,000 tonnes in the last couple of days. MCU-STOCKS
Three-month aluminium rose 0.7 percent to $1,563 a tonne.
Zinc slipped 1.2 percent to $2,002 a tonne. The metal used to galvanise steel hit $2,041.50 a tonne on Monday, its highest since July last year, and is up around 25 percent so far this year on worries about supplies after mine closures.
But higher prices could lead Chinese producers to increase output, Standard Chartered said in a note.
“However, the fact that domestic treatment charges have fallen even as prices rise and mine production increases, suggests smelters are either still short of concentrate or have started to purchase concentrate on a precautionary basis in expectation of even tighter conditions later in the year.”
Lead fell 1.9 percent to $1,709 a tonne, tin slid 0.3 percent to $16,900 a tonne and nickel lost one percent to $8,580 a tonne.
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 Louise Heavens and Adrian Croft)