* LME/ShFE arb: tmsnrt.rs/2oQ5nm20 (Updates with closing prices)
By Peter Hobson
LONDON, Sept 5 (Reuters) - Copper touched a three-year high on Tuesday but closed lower after weak U.S. factory orders prompted a pullback across industrial metals.
Copper, aluminium, nickel and zinc are trading near multi-year highs after strong Chinese demand, a weaker dollar and supply concerns sparked a surge of speculative buying.
"We may have hit a short-term ceiling and some money is coming off the table," said Robin Bhar, head of metals research at Societe Generale.
"(But) Every time we have dipped in the last couple of months there has been good buying," he said.
LME COPPER: Benchmark copper on the London Metal Exchange closed down 0.2 percent at $6,901 a tonne. It had earlier touched $6,970, the highest since September 2014 and near the key psychological level of $7,000.
CHINA: Higher prices are supported by expectations of strong demand in top consumer China. Chinese manufacturing accelerated in August and growth is set to remain strong until the end of the year.
U.S. FACTORIES: New orders for U.S.-made goods saw their biggest drop in nearly three years in July.
SPECULATORS: Momentum funds and speculators in China are betting on higher prices as copper enters its ninth consecutive week of gains, with the net long position in COMEX copper rising to a record high last week.
OUTLOOK: Metals are likely to rise further, said Commerzbank analyst Daniel Briesemann, but he warned prices had detached from supply and demand fundamentals and a correction could take copper below $6,000 a tonne.
STOCKS: Copper prices were supported by a fall in on-warrant stocks available to the market in LME-registered warehouses to 111,450 tonnes, down more than half since mid-July. MCUSTX-TOTAL
SUPPLY: Indonesia's deal to allow Freeport McMoRan Inc to continue operating its huge Grasberg copper mine improves the supply outlook and could help to push prices lower, Standard Chartered analysts said.
"The new agreement should end the periodic bans on concentrate exports that have resulted in an average of 240,000 tonnes per year of lost production since 2014," they said.
CHINA ALUMINIUM: China's southwestern Yunnan province is launching safety inspections on iron, steel and aluminium plants as part of a crackdown on outdated capacity. The province has aluminium smelting capacity of 1.7 million tonnes a year.
PHILIPPINES: President Rodrigo Duterte said he agreed with banning open-pit mining but would give miners time to find other ways to extract minerals. Falling nickel ore output in the Philippines has supported nickel prices.
PRICES: LME aluminium closed down 1.1 percent at $2,096 a tonne; zinc finished 2 percent lower at $3,140 and tin ended 0.3 percent lower at $20,725. Nickel closed down 1.4 percent at $12,080 and lead ended 2.5 percent lower at $2,330.
Additional reporting by James Regan; Editing by David Goodman and Susan Fenton