* Vale ordered to shut iron ore tailings dams in Brazil
* Vale produces most of its nickel outside Brazil
* Analysts say nickel's gains on Vale disaster overdone (Adds closing prices)
By Maytaal Angel
LONDON, Feb 5 (Reuters) - Nickel prices fell on Tuesday as traders took profits after betting the metal up to four-month highs in the previous session on concerns that Brazilian miner Vale could be forced to curtail supply.
Nickel surged 5 percent on Monday after a Brazilian state court ordered Vale to stop using eight tailings dams following a disaster last month that probably killed more than 300 people.
The order will hit nine percent of Vale's iron ore production, but analysts say the company's nickel output should emerge unscathed.
"We don't find it credible. (Vale) do have one asset in Brazil but most of their nickel assets are outside the country and the process of (producing) nickel versus iron ore is not similar," said Vivienne Lloyd, an analyst at Macquarie.
NICKEL: Benchmark London Metal Exchange (LME) nickel closed down 1.7 percent in official midday rings at $13,040 a tonne, having hit $13,265, not far off Monday's four-month peak at $13,275.
TECHNICALS: Nickel on Monday broke through the 200-day moving average, sparking technical follow-up buying.
POSITIONS: LME data shows one firm holding a large short or sell position <0#LME-FBR>, while another holds between 50-80 percent of cash contracts and warrants <0#LME-WHC>, indicating the firm that is short might get squeezed.
NICKEL STOCKS: "Nickel stocks are continuing to decline in the LME's warehouses MNI-STOCKS, yet this is nothing new. Nickel production is likely to be expanded considerably this year. We see no justification for the (price) surge," said Commerzbank in a note.
OTHER METALS: Copper, zinc and lead all hit multi-month highs before retreating, with copper reaching a two-month high, zinc a seven-month high and lead a six-month peak.
GLOBAL MARKETS: Miners and banks helped world stocks extend their white-hot start to the year, while the dollar was straining for a fourth day of gains as traders waited for U.S. President Donald Trump's State of the Union address.
TRADE DEAL: U.S. President Donald Trump said last week he would meet Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as Trump and his trade negotiator both cited substantial progress in two days of talks.
METAL PRICES: Copper ended up 1 percent at $6,231, aluminium ended up 0.2 percent at $1,922, zinc closed down 2.1 percent at $2,741, lead closed down 1.2 percent at $2,102 while tin closed up 0.2 percent at $20,850.
Additional reporting by Naveen Thukral; Editing by Ed Osmond and David Evans