UPDATE 9-Base metals slump on demand worry but end off lows

(Repeats, justifies table)

* Copper recovers from 6-month low but outlook bearish

* Zinc extends losses with LME inventories rising

* Nickel falls to 2-year low

* U.S. Federal Reserve leaves rates unchanged
(Recasts, updates prices, market activity to New York close, adds second
byline, dateline, previously LONDON)

By Chris Kelly and Anna Stablum

NEW YORK/LONDON, Aug 5 (Reuters) - Base metals ended steady to lower on
Tuesday, easing off session lows after markets jittery about global demand
prospects pushed copper to a six-month low and zinc to its lowest level in
2-1/2-years.

Prices recovered as investors squared positions ahead of the U.S. Federal
Reserve's decision to keep interest rates steady in an effort to nurse the
economy back to health without further exacerbating inflation. [ID:nN05325113]

The Federal Open Market Committee's decision to hold rates steady at 2
percent was expected. The accompanying statement said although policy makers
expected inflation to moderate later this year and next, the outlook remained
"highly uncertain."

"I think that it's going to put a lot of volatility into the market," said
Zachary Oxman, senior trader with Wisdom Financial in Newport Beach,
California. "It's not going to drive it one way or the other. It was a pretty
much as expected report by the Fed, and I think it will remind people how
specifically problematic inflation is right now."

Copper MCU3 for three-month delivery on the London Metal Exchange last
traded at $7,610 a tonne, unchanged from Monday's closing level. The metal,
used in construction and power, earlier declined to a six-month low of $7,530
after LME copper stocks rose to their highest level since February.

"While this is arguably a seasonal build up ... the dominant warrant holder
in copper has failed to keep pace with rising inventory, allowing its position
to slip," said analyst Leon Westgate at Standard Bank in a research note.

As a result, the backwardation -- the premium paid for cash metal over
three months prices -- has narrowed to $140 per tonne from this year's peak at
$241 on July 17.

In New York, copper for September delivery HGU8 ended down 2.30 cents at
$3.4170 a lb on the New York Mercantile Exchange's COMEX division.

Concerns about the macroeconomic outlook were also highlighted by the
decline in U.S. crude prices CLc1 to a three-month low of $118 a barrel amid
rising OPEC supply and weaker demand in the United States and Europe.
[ID:nSP68458]

"What we are seeing is more of a nervousness across the whole of
commodities that hasn't left base metals untouched," said Gayle Berry, analyst
at Barclays Capital.

ZINC STOCKS

Zinc MZN3 slid to $1,746 a tonne on rising stocks in LME warehouse, which
rose 2,500 tonnes to 161,825 -- the highest since September 2006.

The increase in inventories is likely to pressure prices even lower,
Barclays Capital said in a research note.

Earlier the metal, mainly used to galvanize steel, hit a 2-1/2-year low of
$1,730 from $1,769 at the close on Monday.

Nickel MNI3 dropped as low as $17,450 a tonne, a two-year low, before
closing at $17,600 a tonne from $18,025.

The metal has fallen 50 percent since its high this year of $35,950 a tonne
as the market priced in lower demand from stainless steel mills.

Lead climbed to $2,015 a tonne from $2,000 on Monday when it shed 6
percent. The battery material has been one of the few metals to rally recently
on the back of Chinese demand and rising cancelled warrants -- material already
reserved.

Tin fell to a two-month low of $20,100 a tonne from $20,600. The metal,
widely used in food packaging and to solder electronic products, has fallen 20
percent since hitting a record high of $25,500 on May 15.

Tin prices are expected to hold steady because the metal has stronger
fundamentals than many others in its group, Edward Meir, analyst at MF Global,
said in a research note.

Aluminium for delivery in three months was steady at $2,900 a tonne, up
from $2,882. The energy-intensive metal has been declining along with oil
prices and hit a three-month low on Monday.

Metal Prices at 1825 GMT
Metal Last Change Pct Move End 2007 Ytd Pct

move
LME Cu 7610.00 0.00 0.00 6670.00 14.09
SHFE Cu* 58960.00 -2060.00 -3.38 56880.00 3.66
LME Alum 2899.50 17.50 +0.61 2403.00 20.66
SHFE Alu* 18700.00 -275.00 -1.45 18180.00 2.86
COMEX Cu** 345.70 -3.05 -0.87 303.05 14.07
LME Zinc 1745.00 -24.00 -1.36 2370.00 -26.37
SHFE Zinc* 14480.00 -645.00 -4.26 18950.00 -23.59
LME Nick 17400.00 -625.00 -3.47 26350.00 -33.97
LME Lead 2010.00 10.00 +0.50 2550.00 -21.18
LME Tin 20200.00 -400.00 -1.94 16400.00 23.17
** 1st contract month for COMEX copper
* 3rd contact month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

(Additional reporting by Julie Crust in London; Editing by David Gregorio)