MELBOURNE - London metals gave up early gains on Tuesday, while Shanghai contracts continued their fall following an extended weekend after China said it would firmly respond to any measures by the United States to widen tariffs on Chinese goods, escalating trade tensions between the world's top two economies.

U.S. President Donald Trump threatened to impose a 10 percent tariff on $200 billion of Chinese goods late on Monday and China responded on Tuesday to say it would fight back firmly with "qualitative" and "quantitative" measures.

"Yes there are many clouds on the horizon with regards to trade," said Dominic Schnider, an analyst at UBS Wealth Management. 

"(But) we are still looking for the global economy to grow at or above trend."

Strong manufacturing and exports out of Europe and resilient property and industrial activity in China reflect solid copper demand which could rise further if China eases its monetary policy, he said. Labour talks in top producer Chile and the likelihood that miners will fall short of production are supporting supply.

UBS Wealth management sees copper in $7,600-$8,000 range in three to six months.

FUNDAMENTALS

COPPER: London Metal Exchange copper erased modest early gains to turn flat at $6,965 a tonne by 0257 GMT, sliding back towards two-week lows plumbed on Monday at $6,886.75.

SHFE: The Shanghai Futures Exchange reopened after a long holiday weekend, reflecting losses seen late last week on simmering trade U.S. China trade concerns. Shfe copper was down 1.7 percent at 52,800 yuan ($8,192)

ALUMINIUM TARIFFS: The U.S. Commerce Department has determined that Chinese common alloy aluminium sheet products are being sold in the U.S. market at less than fair value and will be subject to preliminary anti-dumping duties of 167.16 percent, the Aluminum Association said on Monday.

CHINA POLICY: Having reduced the amount of reserves that lenders must hold just two months ago, China's central bank could soon do it again to support a slowing economy and contain risks posed by corporate debt defaults, policy sources said.

Another cut would support metals by increasing lending activity.

CHINA PMIS: Growth in China's manufacturing sector unexpectedly picked up to a four-month high in December as factories cranked up production to meet a surge in new orders, a private business survey showed on Tuesday.

COMING UP: U.S. Building permits, Housing starts for May at 1230 GMT         

(Reporting by Melanie Burton; editing by Richard Pullin and Subhranshu Sahu)

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