METALS-Grim demand outlook pushes copper to 2-week low

* Weak demand prospects dominate sentiment

* Chinese demand fades (Recasts lead, adds NEW YORK to dateline, updates with New York closing copper prices, adds analyst comments)

By Chris Kelly and Michael Taylor

NEW YORK/LONDON, July 8 (Reuters) - Copper prices settled down on Wednesday, extending a correction to fresh two-week lows, as expectations of a poor economic outlook and slowing demand growth prospects prompted an across-the-board commodities sell-off.

Tin MSN3 and nickel MNI3 prices on the London Metal Exchange both fell more than 5 percent, with tin hitting a two-month low of $13,150 and nickel touching $14,776, its lowest since June 24.

The latest trigger was oil, which dropped more than a dollar to below $62 a barrel after U.S. data showed a big rise in fuel stocks. [O/R] [ID:nN08124647]

"Oil data from the United States were very bearish today and that reinforced the negative sentiment for industrial commodities," said Justin Lennon, analyst at Mitsui Bussan Commodities.

Copper for September delivery HGU9 on the New York Mercantile Exchange's COMEX division slumped 6.65 cents, or 3 percent, to settle at $2.1590 a lb. Earlier, the metal used in power and construction hit a low at $2.1420, its lowest level since June 23.

In London, benchmark copper MCU3 closed down $250 at $4,720 a tonne, near its session trough at $4,710, another two-week low.

"There's a lot of anxiety again about the recovery," said Matthew Zeman, head of trading with LaSalle Futures Group in Chicago. "Some of the most recent data has been pretty disappointing and we are in the slow season for copper as well, so a lot of that talk we heard several weeks ago about 'green shoots' have turned brown, so to speak."

Economic and demand concerns were highlighted by an unexpected decline in machinery orders data from Japan, which reinforced the fragile state of economic activity. [ID:nT292365]

"There's still a certain degree of nervousness over how quickly the economy is going to pick up; nervousness amongst consumers about rebuilding inventory," said David Wilson, analyst at Societe Generale.

Stockpiling by the Chinese state and consumers have this year helped to push copper prices up about 60 percent, but some LME traders said China was looking to sell some of its copper stockpile back into the market.

John Gross, publisher of the Copper Journal, said the discontinuation of Chinese metal buying for strategic stockpiling has been a main factor behind copper market's recent correction.

"If China is going to stop buying metal, or slow down its purchases, I believe it will weigh on the market going forward," he said.

Despite the weaker tone. copper bulls did take support from data showing German industrial output bounced back strongly in May.

Aluminum MAL3 hit a one-month low of $1,545 a tonne. The metal used in transport and packaging closed at $1,550 from $1,618 on Tuesday.

Stocks of aluminum in LME warehouses fell 2,500 tonnes, but remained close to record levels near 4.4 million tonnes.

Analysts expect rising stocks in the current quarter to put further downward pressure on copper and aluminum.

"Our analysis of historical data shows the third quarter to have the largest build of copper and aluminum inventories into LME warehouses," Morgan Stanley said in a note.

Steel ingredient nickel MNI3 closed at $14,950 a tonne from $15,650 on Tuesday, while battery material lead MPB3 closed at $1,610, from $1,656.

Zinc MZN3 closed at $1,510 a tonne from $1,565 and tin MSN3 closed at $13,295 versus $14,125.

However, supporting tin is the build up of long tin positions of about 183,000 tonnes, nearly 10 times the level of LME stocks, compared with around 119,000 tonnes on May 1. [ID:nL6246168] [ID:nL7149027]

For a story on CFTC and commodities regulation click on [ID:nN07310607]

Metal Prices at 1847 GMT Metal Last Change Pct Move End 2008 Ytd Pct

move COMEX Cu 213.75 -7.65 -3.46 139.50 53.23 LME Alum 1557.00 -61.00 -3.77 1535.00 1.43 LME Cu 4746.00 -224.00 -4.51 3060.00 55.10 LME Lead 1614.00 -42.00 -2.54 999.00 61.56 LME Nickel 14880.00 -770.00 -4.92 11700.00 27.18 LME Tin 13150.00 -1600.00 -10.85 10700.00 22.90 LME Zinc 1520.00 -45.00 -2.88 1208.00 25.83 SHFE Alu 13435.00 -45.00 -0.33 11540.00 16.42 SHFE Cu* 38990.00 -260.00 -0.66 23840.00 63.55 SHFE Zin 13135.00 -185.00 -1.39 10120.00 29.79 ** 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 and Pratima Desai in London; Editing by Christian Wiessner)