METALS-Copper ends off highs as data, China worries cap

* Industrial overcapacity in China weigh on sentiment

* Gap between prices and fundamentals remains large

* Lead hits 1-year high on China supply worries

(Recasts, updates with New York closing copper prices, adds NEW
YORK to dateline and analyst comments)

By Chris Kelly and Pratima Desai

NEW YORK/LONDON, Aug 26 (Reuters) - Copper ended little changed
on Wednesday, with prices in London dipping into negative territory
as overcapacity issues in China and mixed economic data in the
United States clouded the metal's demand outlook.

Three-month copper MCU3 on the London Metal Exchange (LME)
closed down $20 at $6,291 a tonne. The metal used in power and
construction has more than doubled since December when prices traded
below $3,000 a tonne.

At the New York Mercantile Exchange's COMEX division, copper for
December delivery HGZ9 eked out a 0.35 cent gain to settle at
$2.8770 a lb.

Bill O'Neill, partner of LOGIC Advisors in Upper Saddle River,
New Jersey, said news that China, the world's top metals consumer,
will take steps to curb industrial overcapacity had a negative
impact on the broader complex. [ID:nPEK157466]

"If this is an indication that China is in there tweaking their
monetary policy, this may potentially slow down expansion and serve
as a negative for the market," O'Neill said.

Large price gains in the red metal since early April have been
triggered by signs of economic stabilization, expectations of a
strong demand recovery and stockpiling by the government and users
in China.

Data on Wednesday showed U.S. durable goods orders surged in
July but a key measure of business demand fell, denting risk
appetite. [ID:nN26256375]

"I don't think we'll see a major weakening," said David
Thurtell, analyst at Citigroup, adding that a rally in the dollar,
which firmed after the data, was temporarily putting some downward
pressure on industrial metals by making dollar-priced commodities
more expensive. [USD/]

In another report, the U.S. Commerce Department said new home
sales hit their highest level in 10 months in July. [ID:nN26259327]

With prices hovering above levels supported by fundamentals,
many believe a correction is due.

"The difference between fundamentals and prices is getting
bigger and bigger day by day," said Eugen Weinberg, analyst at
Commerzbank. "It's difficult to see where the catalyst could come
from, but when it does we could see a huge slump in prices of
industrial metals."

One factor that could prompt a price reversal is stocks of
copper in LME warehouses, which were up about 15 percent since the
middle of July to 296,400 tonnes.

Chilean copper miner Antofagasta Plc (ANTO.L) said that demand
levels in the United States, Europe and Japan remained weak and
warned copper prices were likely to remain volatile in the second
half of the year. [ID:nL0475051]

In other metals, aluminum MAL3 closed at $1,868 a tonne from
$1,900. The metal used in transport and packaging has gained from
concern about lack of nearby availability because of financing deals
which have tied material up until next May. [ID:nLL175677]

But weighing on sentiment were comments by China's top producer,
Aluminum Corp of China (CHALCO) (2600.HK), which said privately held
stocks in the country totaled 500,000 to 600,000 tonnes.
[ID:nHKG49899]

Zinc MZN3 closed at $1,846 a tonne from $1,852, tin MSN3
closed at $13,825 from Tuesday's last bid at $13,990 and nickel
MNI3 closed at $19,075 from $19,355.

Battery material lead MPB3 closed at $2,050 from $2,061,
having earlier surged to $2,129.50 a tonne, the highest since early
August 2008, on concerns about supplies from China, after a spate of
smelter closures because of pollution. [ID:nSP416885]

"Tightened domestic availability of lead is likely to put a
floor under prices as the global market is balanced and inventories
are relatively low," Calyon said in a note.

The news has also reinforced some expectations that the lead
market will probably see a deficit this year.

Metal Prices at 1845 GMT
Metal Last Change Pct Move End 2008 Ytd Pct

move
COMEX Cu 285.55 +0.15 +0.05 139.50 104.70
LME Alum 1860.00 -40.00 -2.11 1535.00 21.17
LME Cu 6295.25 -15.75 -0.25 3060.00 105.73
LME Lead 2056.00 -5.00 -0.24 999.00 105.81
LME Nickel 19050.00 -305.00 -1.58 11700.00 62.82
LME Tin 13850.00 -600.00 -4.15 10700.00 29.44
LME Zinc 1842.00 -10.00 -0.54 1208.00 52.48
SHFE Alu 15030.00 50.00 +0.33 11540.00 30.24
SHFE Cu* 50020.00 620.00 +1.26 23840.00 109.82
SHFE Zin 15350.00 130.00 +0.85 10120.00 51.68
** 1st contract month for COMEX copper * 3rd contract month for
SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07
(Additional reporting by Kylie MacLellan in London; Editing by
Marguerita Choy)