UPDATE 5-Copper slides, Japan data highlights bleak outlook

* Japan data reinforces poor demand prospects

* Copper to remain under pressure until supply cut

* Lead hits two-year low as battery demand plunges

(Updates prices to London close, adds comments)

By Pratima Desai

LONDON, Nov 28 (Reuters) - Copper prices slipped on Friday as tumbling industrial production data from Japan highlighted bleak prospects for demand in an oversupplied market.

Aluminium MAL3 hovered close to a three-year low and lead MPB3 fell to $1,073 a tonne, its lowest since July 2006, as traders priced in falling demand from the auto sector, where sales have plunged.

Benchmark copper for three-month delivery MCU3 on the London Metal Exchange (LME) ended at $3,620 a tonne compared with $3,696 at the close on Thursday.

Aluminium MAL3 closed at $1,769 a tonne from $1,792 on Thursday. Earlier it touched $1,745, close to a three-year low of $1,744 recorded on Nov. 21.

Stocks of metal in LME warehouses rose across the board and analysts say the problem for copper is that easing metal demand has not been matched by falling supplies.

"As long as you have an oversupplied market, prices will remain under pressure," said Michael Widmer, an analyst at BNP Paribas. "There will be surpluses next year and in 2010 ... The market needs to be rebalanced."

Analysts expect the copper market to see a surplus of about 1 million tonnes next year compared with 100,000 this year.

Over supply can be seen in rising stocks of copper, which at more than 290,000 tonnes, are up nearly 50 percent since September and the highest level since January 2004.

Copper, used extensively in power and construction, is down about 60 percent since hitting a record high of $8,940 a tonne in July, when doubts emerged about whether top consumer China would be able to offset falling demand elsewhere.

The latest data to hit sentiment was industrial output in Japan, which dropped 3.1 percent in October, raising fears the recession in the world's third-largest economy could be longer and deeper than previously expected. [TOPWRAP]