METALS-Copper dips on strong dollar as traders await Fed rate decision

Updates prices

July 28 (Reuters) - Copper declined on Tuesday, weighed down by a strong dollar and rising bets on an interest rate hike by the Federal Reserve that could dampen demand for industrial metals.

Benchmark three-month copper CMCU3 on the London Metal Exchange was down 0.3% at $13,691.50 a metric ton as of 1600 GMT. The contract's 50-day moving average was providing support around the $13,570 mark.

"Overall, we expect base metals to remain supported on dips where individual supply stories are still constructive," brokerage Sucden Financial said in a note.

"But the firmer dollar and high U.S. yields mean rallies are likely to need stronger macro confirmation, particularly into the Fed decision and key U.S. data later this week."

The U.S. dollar held near a one-month high. A stronger greenback makes dollar-denominated metals more expensive for holders of other currencies, and can weigh on prices.

The market was awaiting the outcome of the Fed meeting on Wednesday, especially in light of relief to oil prices after a lull in fighting between the U.S. and Iran.

Expectations that the Fed will hold interest rates steady stand at 62%, while 38% of market participants expect at least a 25-basis-point hike, up from 16% a week earlier, according to CME FedWatch.

Higher rates could weigh on demand for copper by dampening economic activity.

Citi remains bullish on copper, however, sticking to its $15,000 year-end target. "Prices have held up over the last month despite some moderation in speculative positioning length and broader commodity weakness," the bank said in a note.

LME copper stocks MCUSTX-TOTAL remain tight, falling to 268,775 tons, the lowest since March. The backwardation in the cash-to-three-month spread CMCU0-3 stood at $33 a ton after hitting $44.50, its highest since January, indicating tight near-term supply.

Elsewhere, aluminium CMAL3 slipped 0.4% to $3,153 per ton, even as LME stocks MALSTX-TOTAL fell further to 269,300 tons, the lowest level seen this century.

Zinc CMZN3 shed 0.9% to $3,577.50, nickel CMNI3 eased 1.3% to $16,985 and tin CMSN3 fell 0.8% to $53,825. Lead CMPB3 was the sole gainer, nudging up 0.2% to $1,894.

(Reporting by Tom Daly; additional reporting by Solomon Cefai; Editing by Varun H K, Mrigank Dhaniwala and Jan Harvey)

((Tom.Daly@thomsonreuters.com))