* Copper cash trades at premium to 3-month contract
* Nickel breaks 4-session losing streak, up nearly 40 percent in year
* Aluminium up 2.1 pct in May, biggest monthly gain in since Feb (Updates with closing prices)
By Harpreet Bhal and Eric Onstad
LONDON, May 30 (Reuters) - Copper prices dipped on Friday, but headed for their biggest monthly gain since December, underpinned by recovering demand from top consumer China, while nickel rebounded after four days of losses on persistent concerns about a supply shortage.
Aluminium was on track for its biggest monthly rise since February on the back of healthy demand, but an analyst was wary about further prices gains due to high stocks levels.
Three-month copper on the London Metal Exchange (LME) closed down 0.57 percent at $6,845 a tonne as traders adjusted positions ahead of the weekend. It hit a near-three-month high of $6,966 earlier this week.
Prices for the metal used in power and construction are up 3.1 percent this month, the biggest monthly increase this year, boosted by seasonally strong second-quarter demand from China.
China is the world's biggest copper consumer, accounting for around 40 percent of global refined demand.
"We are quite optimistic with regards to China. We see that import data so far this year shows that Chinese demand for copper is relatively robust," Commerzbank analyst Daniel Briesemann said. "There seems to be some real demand behind the drop in stocks and copper prices should continue to rise throughout the year."
Reflecting a shortage of available physical supply that is underpinning the market, copper stocks on the LME are at 171,350 tonnes, near their lowest level since August 2008. MCUSTX-TOTAL
The tightness pushed cash copper prices to $101 a tonne above the benchmark contract on Wednesday, the highest premium in more than two years CMCU0-3. It traded as high as $90 on Friday.
Some worries about China's economy resurfaced on Thursday after Beijing called on local governments to accelerate their spending over the next month to boost activity, ahead of a key manufacturing gauge at the weekend.
"It suggests that things are perhaps a bit worse than the government is willing to tolerate," Commonwealth Bank of Australia analyst Lachlan Shaw said.
China's banking regulator said on Friday that it is stepping up oversight to prevent the spread of risks from some failed property developers into the broader financial system, but said that overall risk from property loans is controllable.
LME nickel closed up 1.85 percent to $19,250 a tonne, bouncing after four straight sessions of losses and gaining 5 percent on the month. Prices are already up nearly 40 percent this year, with a ban on the export of unprocessed ores by top producer Indonesia raising fears of a shortage.
In New Caledonia, authorities said they would allow Vale to restart nickel mining as early as Friday after suspending operations at a $6 billion plant following an effluent spill more than three weeks ago.
Aluminium ended down 0.33 percent at $1,839 a tonne after earlier touching the highest level in a month at $1,860. It gained 2.1 percent in May, the strongest monthly rise since February.
The metal mainly used in transportation and packaging has seen strong demand, but high levels of inventories would likely weigh on any further price gains, said Caroline Bain, senior commodities economist at Capital Economics.
"The ample supply pipeline, including stocks, suggests that, at best, aluminium prices will hover around $1,800 per tonne for much of this year," she said in a note. "However, the fundamentals point to a pick-up in prices next year as supply growth slows while demand continues to grow strongly."
Zinc finished down 0.63 percent at $2,055 a tonne, lead closed 1.3 percent weaker at $2,095 and tin fell 1.1 percent to end at $23,220.
Three month LME copper
Most active ShFE copper
Three month LME aluminium
Most active ShFE aluminium
Three month LME zinc
Most active ShFE zinc
Three month LME lead
Most active ShFE lead
Three month LME nickel
Three month LME tin (Additional reporting by Melanie Burton in Sydney; Editing by Dale Hudson, David Goodman and Pravin Char)