LONDON, Nov 6 (Reuters) - Copper prices fell 5.3 percent on Thursday with the focus on rising inventories and sluggish stock markets as global demand prospects worsened.
"The demand situation is going to remain extremely soft for the next few months," said analyst Adam Rowley at Macquarie Bank.
By mid-session, copper for three months delivery MCU3 on the London Metal Exchange fell to $3,930 a tonne from $4,070 at the close on Wednesday and compared with a session low of $3,855 -- hit just after the second official rings.
Copper hit a three-year low of $3,590 on October 27.
The metal, mainly used in construction and power, briefly trimmed losses after Britain slashed borrowing costs by a record 1.5 percentage points to 3 percent and later the European Central Bank also cut rates.[ID:nWEB0276] [ID:nSP20827]
"The cut by the Bank of England was a bit of a surprise," said an LME ring dealer.
"But it just goes to show how bad the economic outlook is."
On Wednesday, copper -- often seen as a key gauge of real economic activity -- dropped more than 8 percent as the dollar firmed. A strong U.S. currency makes dollar-priced commodities more expensive for other currency holders.
"The guidance for metals comes from whatever the guys at the stock exchanges are doing," said a European LME trader.
He said a firm dollar was less relevant to prices.
"It only plays a role in times of physical demand, but if there is no physical demand -- then it doesn't matter what the dollar is doing," he said.
European shares fell, tracking a sharp decline in U.S. and Asian stocks as concern about the economy remained firmly centre stage after Barack Obama's election victory.[.EU]
The FTSEurofirst 300 index of leading European shares was down 2.7 percent at 927.55 points after the ECB cut rates and the index has lost more than 38 percent this year due to a credit crisis and the resulting economic slowdown.
Mining shares were among the ten largest losers on the FTSE .PL.FTSE, Britain's leading share index, with Vedanta (VED.L: Quote, Profile, Research, Stock Buzz), BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) and Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) down more than 8 percent.
Eventually the interest rate cuts would have an impact on economic growth but they would not be a quick fix, said Rowley.
"The market needs to be convinced that those interest rates cuts are going to flow through into stronger growth and they want to see some evidence that that is happening," he said.
Prices of copper, nickel, lead and zinc have fallen between 40-55 percent so far this year on sluggish demand.
Poor demand is mirrored by rising inventories. Stocks of copper in LME registered warehouses jumped 5,075 tonnes on Thursday, bringing the total to 252,550 tonnes.
Since the start of October, stocks are up around 25 percent, rising more than 40,000 tonnes in the last two weeks alone.
In Shanghai, copper prices hit limit down due to concerns over demand as the flow of weak economic data continued.
Bigger-than-expected job losses in the United States, a sharp contraction in the world services sector, steep house price declines and a manufacturing retreat in Britain, all underscored the global economic gloom.
Later today investors will watch U.S. initial jobless claims data, due at 1330 GMT.
Nickel MNI3 fell 5.7 percent to a low of $11,600 before trading at $11,850 against Wednesday's $12,300 and lead MPB3 shed 2.7 percent to $1,470 versus $1,511.
"There is no reason, in a significant surplus, why prices cannot keep falling -- there is no magical floor," said Macquarie's Rowley.
"But clearly prices are getting down to a level where some producers start to adjust their production plans and the surpluses start to become more limited in their scale."
Three-months zinc MZN3 dropped 5.1 percent or $60 to a low of $1,120, before trading at $1,130.5.
More than 1.35 million tonnes, or nearly a third of China's 5 million tonnes of primary zinc production capacity, is slowing production, as a result of weak prices and on an annual basis the cuts add up to 450,000 tonnes.[ID:nHKG331120] [ID:nHKG351475]
Aluminium MAL3 fell $58.5 or 2.8 percent to $2,032.5 per tonne and tin MSN3 fell $300 to $14,600.
