Copper eases but holds near two-week highs as tight China supply offers support

Oct 29 (Reuters) - Copper edged lower on Thursday but still hovered near two-week highs, supported by tight physical supplies in top consumer China, while expectations of further US interest rate hikes limited gains.

Three-month copper on the London Metal Exchange fell 0.31% to $14,432.50 a metric ton as of 0330 GMT, below a two week high of $14,517 set on Wednesday. The London benchmark also set the highest close in two weeks at $14,477.50 on Wednesday.

The most-traded copper contract on the Shanghai Futures Exchange slipped 0.25% to 109,560 yuan ($16,435.64) a ton.

Supply remained tight in China, reflected in surging copper premiums. The Yangshan copper premium , a gauge of Chinese consumers' appetite for imported units surged to $205 a ton as of Wednesday, its highest in more than a decade.

The domestic premium also came back from a rapid dip after the pre-Nation Day holiday restocking, climbing to 1,085 yuan a ton as of Wednesday.

Stocks monitored by SHFE plunged more than 26% last week, according to the exchange's weekly inventory report, after two weeks of inflow.

However, the prospect of further US interest rate hikes remained a potential headwind for copper, despite tight physical supplies in China.

The Fed maintained its benchmark interest rate in a 10-2 vote, with two policymakers favouring a quarter-point increase. Despite upgrading its assessment of US economic growth, the central bank remained concerned about elevated inflation, while markets continued to price in another rate hike in December.

Among other LME metals, aluminium fell 0.21%, zinc edged down 0.03%, lead rose 0.24%, nickel gained 0.70% and tin advanced 1%.

On the SHFE, aluminium dropped 0.76%, zinc edged down 0.02%, lead declined 1.19% and tin slipped 0.55%, while nickel gained 0.37%.

($1 = 6.6660 Chinese yuan renminbi)