By Julie Crust of Reuters LONDON - Stronger oil prices and a...

By Julie Crust of Reuters

LONDON - Stronger oil prices and a weak dollar boosted industrial metals, with copper rallying to its highest level in three weeks, while supply worries pushed tin, nickel and zinc up by around five per cent.

Copper for three month delivery on the London Metal Exchange rose to as high as $US7,760 ($A8,863) a tonne, its highest since August 4. It was at $US7,740 in official rings, up from $7,510 on Wednesday.

The dollar fell further as a leap of more than two per cent in oil prices compounded market nerves already stretched by deepening worries over the health of the US financial system. A weaker dollar makes metals more appealing as a hedge against inflation.

"If the dollar/euro rate starts trading outside of its recent range we will likely see a further impact on base metal prices," Leon Westgate, analyst at Standard Bank, said.

Mr Westgate also noted that price drops last week, when copper fell to its lowest level since February, had triggered an increase in cancelled warrants - material already reserved for customers - which account for nine per cent of LME stocks.

Inventories in LME warehouses of the metal, used by the construction and power industries, increased 400 tonnes to 156,525 tonnes, the highest level since February 11.

Volatile trading

All base metals were higher on Thursday, although trading was expected to remain erratic.

"The mood for commodities appears slightly more bullish but trading conditions are expected to remain volatile," Evolution Securities said in a research note.

Aluminium was last quoted at $US2,465/2,470 a tonne, up from $US2,762, although gains were also pared by a jump in inventories. Stocks of aluminium jumped 8,350 tonnes to 1.16 million tonnes, the highest since April 2004.

Tin jumped more than five per cent on supply worries after the world's biggest integrated producer Indonesian PT Timah said it saw weaker tin output this year. The company said it may not be able to produce 50,000 tonnes of tin this year as dry weather hampered operations.

The metal jumped to $US21,550 a tonne, its highest in almost three weeks and was last quoted at $US21,400/21,450 from its last quote of $US20,500/20,505 on Wednesday as supply worries triggered buying.

Consultancy ITRI said the global tin supply deficit was forecast to reach up to 20,000 tonnes in 2008 due to falling supplies from Indonesia, revising up an earlier estimate of 12,000 tonnes.

Lead jumped as high as 8.6 per cent to $US1,890, from $US1,740 a tonne on Wednesday, amid supply concerns with a rise in cancelled warrants supporting prices in recent days. Cancelled warrants account for almost 20 per cent of stock levels on the LME.

In industry news, Australia's Perilya Ltd will cut its zinc production by almost half in the face of low metals prices and will wait for a rebound in the commodities cycle before resuming full operations.

Zinc was last quoted at $US1,820/1,821 a tonne, up from $US1,750, after rising as much as 4.9 per cent to $US1,835.

Nickel, a key ingredient in stainless steel, jumped to a five week high of $US21,200 from $US19,900.