BRITAIN'S top investment batch dog yesterday launched a comprehensive review of the role and powers of the London Metal Exchange (LME) in an attempt to restore international confidence in the market in the wake of the Sumitomo copper affair.

"It is clear that the LME depends on confidence," Sir Andrew Large, chairman of the Securities and Investments Board (SIB), said.

The exchange has faced accusations of lax supervision since Sumitomo Corporation's announcement last week that it had lost $1.8 billion (£1.1 billion) because of dealings by Mr Yasuo Hamanaka, its former chief copper trader.

The SIB said the review would cover all aspects of metal trading in Britain, including transactions and participants that are not regulated by the LME or any otherbody.

Most copper contracts in the world are based on prices set in LME dealings.

Meanwhile, the LME revealed that a senior Sumitomo manager, Mr I. Nisbiumi, then director and general manager of Sumitomo's non ferrous metals division, had attended a meeting at the SIB in December, 1991.

The SIB called the meeting to ask Mr Hamanaka to explain a letter in which he requested an invoice for a backdated, fictitious trade worth $250 million.

The exchange had also "expressed concern" at that timed about the size of Sumitomo operations in its copper market. Mr David King, LME chief executive said.

Sumitomo has denied that it knew of or authorised Mr Hamanaka's trades.

It insisted again yesterday that Mr Hamanaka was acting on his own, but said it was examining how it handled the warnings it received from London in 1991.

The LME review will study the regulation of metal and associated derivatives trading.

It will examine not only the LME's own rules and operations but also the arrangements for international co-operation between regulators.

"It is important to emphasise that, in this case, the problems have occurred within a customer of the market, rather than within a reulated investment firm or bank." Sir Andrew said.

"Nevertheless, the SIB has a strong interest when the impact of these events creates questions of confidence."

The SIB said it was working closely with the US Commodity Futures Trading Commission and with Japanese regulators.

Mr Keisuke Sadamori, deputy director of the Japanese Ministry of International Trade and Industry, said. "As for as we can see, what Sumitomo did was not illegal from our point of view.

"We're watching developments but we're not particularly requesting that Sumitomo give us information."

Sumitomo had agreed to co-operate with the SIB's inquiries but the watchdog acknowledged that this was voluntary since the SIB had no power to compel it to do so.

The review, to be led by Mr David Pritchard, head of the SIB's markets and exchanges division, is expected to be completed in six months. Its conclusions will be published.

Sir Andrew said the SIB was continuing to monitor the unwinding of Sumitomo's long positions on the LME and was confident that an orderly market could be maintained.

Mr King said. "Sumitomo has under taken not to create a disorderly market in any way.

Copper prices moved higher yesterday after the LME said it had "satisfactorily absorbed the major shocks".