On the London Metal Exchange (LME) nickel hit $7,200 a tonne at one stage, up from Wednesday's kerb close of $6,965, before settling around $7,100/7120.

"It was expected, and we have seen the obvious knee-jerk reaction. But it is in the price now," analyst Martin Squires of LME trader Rudolf Wolff and Co said.

Toronto-based Inco, the Western world's largest nickel producer, began the shutdown late Wednesday night just hours after the United Steel workers of America overwhelmingly voted to reject the company's final contract offer.

The lockout occurred despite a last-minute offer by the Steelworkers to extend the current three-year collective agreement by two weeks, allowing negotiators a chance to break an impasse over wages and benefits.

"Such a snub clearly shows that the company is resolute overits wage offer and isprepared to risk a lengthy strike rather than compromise. This is unlikely to be a strike with a speedy resolution -- neither the unions or the company will back down quickly," broker GNI Ltd said in its daily report.

"We have made our final offer. We obviously are willing tomaintain lines of communication, but there are no talks planned at this time," said Dan McSweeney, Manitoba division spokesman.

The previous contract expired at midnight on Wednesday (0100EDT/0500 GMT).

The run-up to the contract expiry at Thompson -- whichproduces 100 million pounds of nickel a year, or 4.5 percent of world production -- has seen sharp price moves on the LME.

The market hit a 25-month high of $7,445 last week, butdived over 10 percent on Wednesday on hopes that a strike could be avoided. Analysts now expect a period of more settled trading.

"It will become a side issue now, and the market will focusmore on the improving economic picture," Squires said.

Dealers expected the price to continue climbing,eventuallytargeting $7,250, whether or not the lockout carried on, partly on technical factors and partly because demand from stainless steel producers -- the biggest end-users -- is rising.

One European dealer said the impact would be more noticeablein the North American physical sector, where Inco dominates the market for cut cathode -- slabs of nickel cut into one-inch squares.

Inco was hard hit last year by the Financial crisis in Asiaand the subsequent collapse of nickel prices to a December 1998 low of $3,765 on the LME, the weakest for 15 years.

Inco reported its fourth consecutive quarterly loss in July,but cost savings from the restructuring and higher nickel prices appeared to have set the stage for a return to profitability.

This is the second lockout in three years at the Manitobadivision. A four-week strike also hit Inco's Sudbury, Ontario, operation in June 1997.