Copper down on demand fears, aluminum at 7-mth low

LONDON (Reuters) - Copper prices in New York and London slipped and aluminum hit a seven-month low on Tuesday as the dollar rallied, oil prices tumbled and investors worried about demand for industrial metals.

"There are concerns about growth in the global economy and the effect any sort of slowdown will have on metals demand," said Sudakshina Unnikrishna, an analyst at Barclays Capital.

"It's not any shift in underlying fundamentals of supply and demand, it's really of lot of negative perceptions about the global economy which are affecting commodities as a whole."

London Metal Exchange three-month copper -- often seen as a key gauge of real economic activity -- closed at $7,270 a tonne, after shedding more than $200 on Monday.

Earlier, copper hit an intraday low of $7,128, down 2.4 percent and the lowest since August 12, compared with $7,305 at the close on Monday.

In New York, copper for December delivery shed 11.40 cents to close at $3.2730 a lb on the New York Mercantile Exchange's COMEX division, after sinking earlier to $3.1590 -- the contract's lowest price point since January 28.

"Copper is just getting dragged down by a lot of outside market forces ... especially the size of the move in crude oil," said Rob Kurzatkowski, futures analyst with OptionsXpress in Chicago.

U.S. crude oil futures settled down below $110 a barrel as energy companies assessed damage and geared up to restart energy infrastructure shut ahead of Hurricane Gustav, and as a resurgent dollar contributed pressure.

The Reuters-Jefferies CRB index .CRB hit 6-1/2 month lows as investors sold off their positions in oil and other raw materials following the weaker-than-expected impact from Gustav.

"It's gloom and doom," said Sean Corrigan, chief investment strategist at Diapason Commodities Management. "The world has woken up to the fact that economies are weakening pretty much across the globe."

Corrigan said it was vital copper held at $7,000 a tonne.

"If it breaks then the next move could be to $6,600 and all the way down to $5,800," he said.

LME copper stocks jumped 6,075 tonnes to their highest since January, at 179,800 tonnes, up 64 percent since the year low in May.

Rising stocks have pulled down the backwardation -- the premium for cash material over three-months prices -- to $25 per tonne. On July 17, the premium hit the year's high, at $241, with a dominant position capturing most of the market.

"With LME stocks increasing, backwardation easing, and macro economic data remaining weak, the near term outlook for copper looks negative," UBS analyst John Reade said in a report.

Aluminum -- used mainly in transport, packaging and construction -- closed down $10 at $2,695, after earlier falling to $2,680.5 per tonne, the lowest price since February 13.

The euro fell below $1.45 for the first time since February as a weaker oil price stoked expectations that lower inflation ahead will allow the European Central Bank to cut interest rates in the coming months.

A firm U.S. currency makes dollar-priced metals more expensive for holders of other currencies.

The fall of crude oil sent the dollar index .DXY to its highest level since late October.

Investment bank Citi revised its copper, aluminum and zinc price forecasts downwards on the back of expectations of continued slowdown in global economic growth.

Citi said in 2009, aluminum is forecast to trade at an average of $180 per pound ($3,968 per tonne), down 10 percent from a previous forecast.

Citi forecast copper, used mainly in the power and construction sectors, at $4.75 per pound ($10,472 per tonne).

LME zinc closed at $1,775 per tonne against $1,775/1,780 on Monday, when the metal, mainly used to galvanize steel, eased 2.3 percent. It hit a low earlier in the day of $1,720, its lowest price since August 20.

Citi forecast zinc prices to bottom at $70 per pound ($1,543 per tonne) in 2009.

Lead fell to $1,909, after hitting an intra-day low of $1,850, down 4.4 percent against Monday's close of $1,935.

LME nickel rose to $19,450 from $19,200, after a 5 percent slump on Monday in the wake of a big delivery of metal. LME stocks stood at 48,474 tonnes, their highest level in about four months.

Tin was last quoted at $19,150/19,200 from $18,925 and the metal is this year's best performer, up 16 percent.

(Additional reporting by Julie Crust in London and Chris Kelly in New York; editing by Jim Marshall)