(Updates with closing prices)By Eric OnstadLONDON, Jan 17 (Reuters) - Aluminium fell on Thursday aftera vote by U.S. lawmakers cleared the way for sanctions to belifted on major producer Rusal, potentially increasing supply.The U.S. Senate on Wednesday rejected legislation to keepsanctions on companies linked to Russian oligarch OlegDeripaska, including Rusal . In December, the U.S. Treasury said it would lift sanctionson Rusal, the world's largest aluminium producer outside China. But analyst Nicholas Snowdon at Deutsche Bank said thewidespread perception that the lifting of sanctions will resultin more supply was misguided."It's incorrect to see it as a bearish development. Themarket has been in deficit, so traders have reduced inventories.It's not an additional surplus to the market that hasn't alreadybeen accounted for," he said."We've certainly started to see some short covering play outin China over the last couple of sessions."According to estimates by broker Marex Spectron, the netspeculative short position on the London Metal Exchange is at 31percent of open interest, levels not seen since 2015 when theshort reached 47 percent of open interest in mid-August.
Benchmark LME aluminium fell 0.1 percent to $1,858 atonne in closing open outcry trading, recouping losses aftertouching an intraday low of $1,822.50.
* WEAK ACTIVITY: A combination of uncertain macro elements,including a slowdown of China's economy, was curbing activity onmetals markets, Snowdon said. "Broadly, conviction remains low.You're caught between the crosswinds of continued weakness inthe Chinese macro data, but clearly a more proactive policy onthe environment."
* CHINA STIMULUS: Some metals gained, helped as Chinaannounced more stimulus, with the country's central bankinjecting more cash into the financial system, bringing theamount for the week to 1.14 trillion yuan ($168.74 billion)
* CHINA COPPER: Copper on the Shanghai Futures Exchange has flipped into backwardation amid a promise ofvalue-added tax (VAT) cuts in China, which has increasednear-term demand for physical copper, brokerage Jinrui Futuressaid in a note.Three-month LME copper finished up 0.4 percent at$5,992 a tonne, the highest since Jan. 9.
* NICKEL: The discount of cash LME nickel to the three-monthcontract surged to $66.50 from $9.00 the previous day.Analysts said the spread had tightened due to temporary factorsrelated to the expiry of an LME monthly nickel futures contracton Wednesday.
* PRICES: LME nickel shed 0.3 percent to closeat$11,590 a tonne, zinc climbed 2 percent to $2,547, thehighest since Dec. 27, lead fell 0.6 percent to $1,963and tin ended up 0.1 percent at $20,585.
* For the top stories in metals and other news, click or <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^Top Base and Precious Metals Analysis - GFMS ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Addtionial reporting by Naveen Thukral in SINGAPORE and TomDaly in BEIJING; Editing by Alexander Smith and David Evans)