UPDATE 8-Copper falls 10 pct on higher stocks, demand fears

* Volatile copper reverses direction, falls 10.2 pct

* Global demand worries and rising stocks dent sentiment

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

By Chris Kelly and Anna Stablum

NEW YORK/LONDON, Oct 30 (Reuters) - Copper lost more than 10
percent of its value on Thursday as rising London Metal Exchange
stocks rekindled concerns about demand and put the brakes on this
week's short-covering rally in industrial metals.

The bearish market sentiment grew after data showed the U.S.
economy shrank to a 0.3 percent annual rate in the third quarter,
its sharpest contraction in seven years. [ID:nN29534671]

"This is just the beginning of contraction," said Sung Won Sohn,
an economics professor at California State University who says the
fourth quarter will certainly show another decline, meeting the
traditional definition of recession as back-to-back quarters of
falling activity.

London copper for three-month's delivery MCU3 fell 10.2
percent to an intraday low of $4,180 a tonne after LME stocks jumped
6,575 tonnes to 223,875 tonnes -- a reminder of the metal's weakened
state of demand.

"Demand is weak and inventories are going to continue to
increase," said Catherine Virga, senior base metals analyst with CPM
Group in New York

The metal -- seen as a key gauge of real economic activity --
closed at $4,210, down from $4,655 at the close on Wednesday, when
it surged 12.6 percent.

In New York, copper for December delivery HGZ8 tumbled 19.75
cents, or 9.5 percent, to settle at $1.8905 a lb on the New York
Mercantile Exchange's COMEX division.

"If in the next one to two days, copper prices can hold above
$1.80 a lb, we could have the ability for prices to rise again,"
Virga said. "That would be more of a change in investors' attitude
towards the dollar, towards stocks, and not really reflective of the
fundamentals for copper, which are pretty poor at this time
period."

The U.S. dollar hit session highs against the euro, after
trading lower for most of the global session, as investors bought
back the greenback to rebalance portfolios for month-end purposes.
[ID:nN30255518]

"We have never seen moves like this before...it is uncharted
territory," said Kevin Norrish, analyst at Barclays Capital,
relating the extreme price volatility to macro-economic concerns,
huge movements in interest rates and exchange rates and very low
levels of liquidity.

Prices have risen more than 33 percent this week as investors
covered short positions, but for the month prices are still down
nearly 44 percent, which at the end of the month could be the
biggest fall in at least three decades.

"Focus is still on China, and there is a lot of concern about
the potential of further big declines in export levels and debate
over the extent of the stimulatory measures that have been announced
if they will really help," Norrish said.

On Monday, copper prices dipped to $3,590 a tonne, their weakest
level in more than three years.

In other metals, nickel MNI3 surged 14 percent on Wednesday as
short positions were covered but, like the other metals, prices fell
on Thursday to a low of $11,700, down 14.2 percent.

It closed at $11,900 against $13,640 on Wednesday.

Lead MPB3 dropped, down 8.5 percent to a low of $1,445 before
closing at $1,520 versus $1,580.

Zinc MZN3 stocks also came in higher at 182,100 tonnes,
sending prices to a low of $1,145 a tonne. It closed at $1,160, down
7.9 percent versus Wednesday's $1,260.

Britain's leading FTSE share index .FTSE ended the session 1.2
percent higher in choppy trade, as Kazakh copper producer Kazakhmys
(KAZ.L) said it may cut copper output next year due to lower
projected spending arising from global financial instability.
[ID:nLU479707]

Producers have started to cut back production across metals as
falling prices put profit margins under pressure.

"All these producer cutbacks are bearish as it really shows how
bad the demand picture is," said another LME ring trader.

"But of course once demand picks up again it will create tight
supplies with potential for another bull run," he said.

In other industry news, Russia's richest man, Oleg Deripaska,
became the first beneficiary of a Kremlin-backed rescue package when
his flagship company secured a $4.5 billion loan needed to keep its
stake in Norilsk Nickel (GMKN.MM).

LME tin MSN3 was untraded but last bid at $14,600 against
Wednesday's close of $15,225. Tin prices are up about 50 percent
since plunging to a 21-month low of $10,300 on Oct. 24.

In contrast to most other metals, tin stocks have dropped 75
percent since August last year to 3,770 tonnes.

Copper stocks have risen by 80 percent in the same period.

Aluminium MAL3 closed 4 percent lower at $2,065, down from
$2,151 on Wednesday.

Metal Prices at 1923 GMT
Metal Last Change Pct Move End 2007 Ytd Pct

move
LME Cu 4200.00 -455.00 -9.77 6670.00 -37.03
SHFE Cu* 33100.00 1280.00 +4.02 56880.00 -41.81
LME Alum 2070.00 -81.00 -3.77 2403.00 -13.86
SHFE Alu* 14455.00 260.00 +1.83 18180.00 -20.49
COMEX Cu** 188.85 -19.20 -9.23 303.05 -37.68
LME Zinc 1150.00 -110.00 -8.73 2370.00 -51.48
SHFE Zinc* 9515.00 290.00 +3.14 18950.00 -49.79
LME Nick 11850.00 -1790.00 -13.12 26350.00 -55.03
LME Lead 1498.00 -82.00 -5.19 2550.00 -41.25
LME Tin 14400.00 -825.00 -5.42 16400.00 -12.20
** 1st contract month for COMEX copper * 3rd contact month for SHFE
AL, CU and ZN SHFE ZN began trading on 26/3/07
(Reporting by Chris Kelly in New York, Anna Stablum and Michael
Taylor in London; Additional reporting by Nick Trevethan in
Singapore, editing by Marguerita Choy)