* Cancelled copper warrants climb

* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl

(Adds ShFE arb, closing prices)

By Zandi Shabalala

LONDON, Aug 24 (Reuters) - Copper rose on Friday, clockingits first weekly gain in four on a softer dollar, though worriesabout Chinese demand are expected to cap gains as the country'strade dispute with the United States drags on.

Benchmark copper CMCU3 on the London Metal Exchange (LME)rose 2 percent to close at $6,105 a tonne, up nearly 3 percentfor its biggest weekly gain since early June.

The dollar index .DXY eased by 0.6 percent after FederalReserve Chairman Jerome Powell defended the U.S. central bank'spush to raise interest rates. A weaker dollar makes commoditiespriced in the greenback cheaper for holders of other currencies. urn:newsml:reuters.com:*:nL2N1VF0MJ

"It's a dollar story again today, but from a demand point ofview it is a little more constructive than it was a few weeksback," said ING commodities strategist Warren Patterson.

"The trade war is going to create volatility in the marketbut generally the trend should be higher metal prices."

TRADE: U.S. and Chinese officials ended two days of talks onThursday with no major breakthrough as their trade war escalatedwith activation of another round of duelling tariffs on $16billion of each country's goods. urn:newsml:reuters.com:*:nL2N1VE01M

The tariffs have sapped demand for metals this year.

CHINA INTERVIEW: China will keep retaliating as more U.S.trade tariffs are imposed, but its counter-strikes will remainas targeted as possible to avoid harming businesses in China,both Chinese or foreign, Finance Minister Liu Kun told Reuters. urn:newsml:reuters.com:*:nL3N1VE3R8

COPPER SPREADS: The discount for the cash contract to3-month copper has narrowed to $19 a tonne from $42 last weekbecause of worries about metal for nearby delivery on the LMEmarket because of a rise in cancelled warrants for delivery. MCU0-3

STOCKS: Cancelled warrants in LME-approved warehouses haverisen above 100,000 tonnes for the first time this year,representing about 39 percent of LME copper stocks. MCUSTX-TOTAL

SHFE ARBITRAGE: Traders say the cancelled metal is headingfor China because prices on the Shanghai Futures Exchange areabout $7,150 a tonne SCFc1 and the gap against LME prices islarge enough to cover shipping, taxes and make a profit.

CHINA PREMIUMS: China copper import premiums SMM-CUYP-CN are at $86 a tonne, their highest since October2017. urn:newsml:reuters.com:*:nL3N1VC1O0

LEAD: The price of lead CMPB3 rose to its highest sinceAug. 14 at $2,086, on course for its best week in three months.

PRICES: Aluminium CMAL3 closed with a 1 percent gain at$2,095 a tonne, zinc CMZN3 finished 2.7 percent up at $2,534,lead rose 1.5 percent to $2,085, tin CMSN3 ended 0.5 percentdown at $18,995 and nickel CMNI3 added 1.1 percent to $13,415.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Top Base and Precious Metals Analysis - GFMS http://tmsnrt.rs/2lvmIzW

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Additional reporting by Tom DalyEditing by David Goodman) ((zandi.shabalala@tr.com; +44 207 542 5937; Reuters Messaging:zandi.shabalala.thomsonreuters.com@reuters.net))

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