METALS-Copper falls, rising inventories signal weak demand

* LME copper stocks at highest since May

* Fed, BOE, ECB all hold interest rates

* Aluminium inventories dip

(Recasts, updates prices, market activity to close)

By Carole Vaporean and Michael Taylor

NEW YORK/LONDON, Nov 5 (Reuters) - Copper remained lower into late trade on Thursday, hit by another jump in inventories that renewed concerns about weak demand for the red metal and whether Chinese buying will continue as prices rise.

Some analysts said copper's gains above key psychological targets worried some players that prices may have gone "too far, too fast" and used the first hint of overbought conditions as an opportunity to sell.

Copper for three-months delivery MCU3 on the London Metal Exchange ended at $6,530 a tonne from $6,570 on Wednesday. The red metal hit a session low of $6,485.

A day earlier it surpassed the $6,600 a tonne level and set a high at $6,630 a tonne. Some players read that move as renewed attempts to reach the 13-month top set last week.

In New York, copper for December delivery HGZ9 lost 3.60 cents to finish at $2.9570 a lb on the New York Mercantile Exchange's COMEX division.

Similarly, COMEX copper prices briefly rallied to levels above $3.00 a lb during the Wednesday session, prompting market talk of attempts on the $4.00 target that spurred some players to unload copper holdings, brokers said.

Copper inventories at London Metal Exchange warehouses have been rising since mid-July, and on Thursday climbed by 5,775 tonnes to 379,825 tonnes, their highest level since early May.

"People are concerned that outside of China, in the developed world, that demand may not pick up as strongly as needed," said Max Layton, an analyst at Macquarie.

"The fact that inventories are still rising despite very strong Chinese exports is suggesting that copper today is in surplus globally," he added.

Analysts said that this year copper would not retest 2009 highs above $6,700, but it could rise towards $7,000 in 2010.

The copper price has more than doubled this year, supported by hefty buying by China, the world's top consumer of the metal used in power and construction, and dollar weakness.

But analysts warn high metal prices are crimping China's buying. "For sustained gains we'd need to see the Chinese come back," said Andrey Kryuchenkov, analyst at VTB Capital.

RATE SPATE

At the same time, copper's downside was limited by the latest U.S. government data series, both of which came in better than analysts predicted in a Reuters consensus.

U.S. workers filing new claims for jobless insurance fell more than expected last week to a 10-month low, pointing to gradual improvement in the labor market. Story: [ID:nN0436092] Table: [ID:nOAT004342]

U.S. non-farm productivity in the third quarter rose at its fastest pace in six years as companies squeezed more output from a smaller pool of labor and cut costs to deal with a slump in demand. Story: [ID:nN0436475] Table: [ID:nOAT004342]

Despite the stronger U.S. readings, the dollar lost to the euro after both the Federal Reserve and the ECB kept interest rates at record lows, but the Fed was viewed as the laggard when it comes to increasing rates. [USD/]

European equities rose after the Federal Reserve kept interest rates near zero for "an extended period." [.EU]

The European Central Bank and Bank of England (BoE) both left interest rates on hold. The BoE also expanded its quantitative easing programme by 25 billion pounds to 200 billion pounds to help revive Britain's recession-hit economy. [ID:nL5403327] [ID:nL5152809]

"The Fed is reiterating that they're going to keep rates low for a certain period...this could mean (more) weakness in the dollar before the year-end," Kryuchenkov said.

Aluminium MAL3 closed at $1,925 from $1,921. Demand for the metal used in transport and packaging still suffers.

Latest data showed LME stocks of aluminium fell 2,300 tonnes to around 4.5 million tonnes, having recently declined from record highs of around 4.6 million tonnes.

Despite lofty stock levels, aluminium prices have risen by a quarter so far this year, supported in part by dollar weakness and in part by a lack of available nearby material.

Analysts say more than 70 percent of LME aluminium stocks are tied up in finance deals which will start expiring at the year-end. They warn, however, that there is a lack of visibility about how long it will take for all these contracts to expire.

Citi analyst David Thurtell said aluminium inventories have peaked, but warned any stock declines would be slow.

"The Chinese have cranked up production," he said. "The rest of the world has got plenty (of production) to reopen if they want to...And if they do, that will largely match the rise we'll have in demand when the western world recovers," he said.

"It's only if stocks are run down meaningfully that we're going to get a meaningful price rise from here."

Zinc MZN3 ended at $2,219 from $2,229 and lead MPB3 was at $2,340 from $2,350. Tin MSN3 was untraded in closing rings but last bid at $14,950 from $15,000 and nickel MNI3 ended at $17,760 from $17,900.

Metal Prices at 1710 GMT Metal Last Change Pct Move End 2008 Ytd Pct

move COMEX Cu 295.90 -2.55 -0.85 139.50 112.11 LME Alum 1920.00 -1.00 -0.05 1535.00 25.08 LME Cu 6525.00 -45.00 -0.68 3060.00 113.24 LME Lead 2325.00 -25.00 -1.06 999.00 132.73 LME Nickel 17775.00 -125.00 -0.70 11700.00 51.92 LME Tin 14900.00 -100.00 -0.67 10700.00 39.25 LME Zinc 2205.00 -24.00 -1.08 1208.00 82.53 SHFE Alu 15190.00 -35.00 -0.23 11540.00 31.63 SHFE Cu* 50710.00 -420.00 -0.82 23840.00 112.71 SHFE Zin 16845.00 -135.00 -0.80 10120.00 66.45 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

(Reporting by Carole Vaporean in New York and Michael Taylor in London; Editing by David Gregorio)