* GRAPHIC-2018 asset returns: tmsnrt.rs/2jvdmXl
* LME/ShFE arb: bit.ly/2wZSAEz (Adds official midday prices)
By Maytaal Angel
LONDON, Feb 5 (Reuters) - Copper hit a three-week high on Monday as the dollar rally paused and the balance of supply and demand looked to stay relatively tight, while nickel climbed after posting its largest daily loss in two months on Friday.
The dollar remained mired near three-year lows as resurgent U.S. wage inflation data failed to quell scepticism among investors about the currency's outlook.
U.S. payrolls on Friday showed wages growing at their fastest pace in more than eight years.
"The dollar is driving the market," said Casper Burgering, an analyst at ABN Amro. A weaker dollar makes dollar-priced metals cheaper for non-U.S. investors.
Burgering also said that copper relative to other metals "is lagging, it's up only 1 percent for the year. It's undervalued because the fundamentals are really good for this year."
COPPER, NICKEL PRICES: London Metal Exchange copper closed up 1.8 percent at $7,169 a tonne, having hit its highest since mid-January at $7,220, while nickel ended up 2.4 percent at $13,745 a tonne, having plunged 4 percent on Friday.
Some of China's stainless steel mills, major consumers of nickel, are losing money at current prices and have already wound down their operations ahead of the week-long Chinese Lunar New Year, broker Argonaut Securities said in a report.
"We expect to see price weakness in nickel going forward," it said.
* MARKETS: Stock markets were routed around the globe while bond yields climbed as resurgent U.S. inflation raised the possibility central banks would tighten policy more aggressively than had been expected.
* CHINA ECONOMY: China is expected to report solid growth in January trade this week, moderating inflation and renewed bank lending, but the timing of the long Lunar New Year holidays will make it difficult to determine clear trends for at least another month.
* LEAD: Lead prices took a breather from Friday's 6-1/2 year top, ending down 1 percent at $2,652. Indicating nearby tightness, cash lead traded at a $17.25 a tonne premium to the three month price CMPB0-3.
* ZINC: Indicating nearby tightness, LME data showed one entity holds 80 to 90 percent of zinc warrants, cash and "tom" positions <0#LME-WHT>. Zinc ended up 1.3 percent at $3,548.
* INVESTORS: Hedge funds and money managers cut their net "long" or buy position in COMEX copper in the week to Jan. 30, data showed.
* ALUMINIUM: Russian aluminium maker Rusal estimates that China's winter capacity cuts will curb output by 1 million tonnes annually. Aluminium ended up 0.1 percent at $2,211.
* TIN: Tin ended up 1.8 percent at $21,920.
Additional reporting by Melanie Burton, editing by David Evans and Louise Heavens