* LME/ShFE arb: bit.ly/2wZSAEz (Updates with closing prices)
By Peter Hobson
LONDON, March 27 (Reuters) - Copper prices rose on Tuesday after reports of behind-the-scenes talks between the United States and China fuelled hopes that a trade war could be averted and sparked a global stock market recovery, but a strengthening dollar limited gains.
Benchmark copper on the London Metal Exchange closed up 0.7 percent at $6,649 a tonne, after touching a 3-1/2-month low on Monday.
"Copper is trying to react to the improved sentiment in the stock market (and) reduced fears about global trade tensions," said Saxo Bank analyst Ole Hansen.
But he said prices were unlikely to rally far.
"With inventories on the rise, the market lukewarm about the near-term prospects for Chinese demand and the speculative community having sliced their longs to the lowest in a couple of years, there's not much of an appetite (for copper) right now."
U.S.-CHINA TALKS: Trump administration officials are asking China to cut tariffs on imported cars, allow foreign majority ownership of financial services firms and buy more U.S.-made semiconductors in negotiations to avoid plans to slap tariffs on a host of Chinese goods and a potential trade war.
INVENTORIES: Copper's price gains were limited by rising stocks which suggested ample supply of the metal. Stockpiles in LME-registered warehouses at 383,975 tonnes are up 91 percent this year and the largest since December 2013. MCUSTX-TOTAL
POSITIONING: Bets on higher prices have fallen, with funds' net long position in copper on the Comex exchange down more than 80 percent since the start of the year and the lowest since late 2016.
TECHNICALS: Copper rebounded from technical support at $6,500, a key psychological level and copper's December low, and was struggling to break above its 200-day moving average at $6,687.
STRIKES: Workers at Antofagasta's Los Pelambres copper mine in Chile on Monday reached an agreement on a new labour contract.
But union leaders at Codelco Norte, a unit of Chile's state-owned miner Codelco, reportedly urged members to strike after rejecting a pay offer. Norte's Chuquicamata and Radomiro Tomice mines produced 608,000 of copper last year, according to ING.
SUPPLY RISK: Fears that labour disputes would cause supply disruption this year helped drive copper prices to a four year high of $7,312.50 in December.
DOLLAR: The dollar rebounded from a five-week low against a basket of currencies, making metals more expensive for users of other currencies, which can dampen demand.
OTHER METALS: LME aluminium ended down 0.4 percent at $2,044.50 a tonne, zinc finished 0.4 percent higher at $3,275, lead closed up 0.8 percent at $2,406, nickel rose 0.4 percent to $13,000 and tin ended up 0.1 percent at $20,875.
Additional reporting by Tom Daly in BEIJING, editing by Louise Heavens and David Evans