(Rewrites with updated prices and analyst comment, changes

dateline)

By Eric Onstad

LONDON, July 23 (Reuters) - Copper prices touched their

highest in over two weeks on Wednesday as a U.S.-Japan trade

deal boosted sentiment, although gains were capped over concern

about surpluses and rising inventories.

Three-month copper on the London Metal Exchange was

up 0.2% at $9,934 at 0945 GMT, its strongest since July 4.

Copper has gained about 4% over the past week and is

approaching its three-month peak of $10,020.50 hit on July 2.

Sentiment was boosted after U.S. President Donald Trump

struck a trade deal with Japan, lifting global share markets.

Metals investors are focused on a potential trade deal with

the world's top metals consumer China ahead of a meeting

scheduled for next week between U.S. and Chinese officials in

Stockholm.

Worries about oversupply, however, weighed on the market,

highlighted by data showing the copper market was in a surplus

of 272,000 metric tons in the first five months of the year.

Also chipping away support was an overhang of inventories in

the U.S. after traders took advantage of higher prices there due

to the expectation of tariffs being imposed, which are due to

take effect on August 1.

"We could see ... copper range-trading once the tariffs come

into play or possibly even soften," said Nitesh Shah, commodity

strategist at WisdomTree.

"The U.S. will be using up all that stockpile of copper

before importing new units from abroad and therefore demand may

look a little bit weak for that period of inventory rundown."

Copper flows are now being diverted away from the U.S. and

are showing up in rising LME inventories, which have surged 38%

since June 27.

Among other metals, aluminium dropped 0.5% to

$2,641.50 a ton and zinc dipped 0.1% to $2,856, while

lead gained 0.8% to $2,026, nickel added 0.1% to

$15,545 and tin was up 0.3% to $34,000.

For the top stories in metals, click