MARKETS-METALS (UPDATE 7) * Copper down in consolidation pause to rally * LME copper stockpiles increase 1,000 tonnes * Coming up: U.S. July nonfarm payrolls due Friday (Recasts, updates prices, market activity to New York close, adds second byline, dateline, previously LONDON) By Chris Kelly and Michael Taylor NEW YORK/LONDON, Aug 3 (Reuters) - Copper prices fell 1 percent on Tuesday, as investors took profits on signs the steady decline in LME inventories may be abating, pushing prices down for just the second daily decline in two weeks. London Metal Exchange (LME) warehouse stocks rose by another 1,000 tonnes to 414,075 tonnes, their highest since July 23. Over the past four days, stocks have risen by their most since hitting a record high in February. The inventory move, as well as downbeat U.S. housing data, encouraged traders to take profits in a market that has rallied nearly 16 percent since July 19 due mainly to the euro's recovery versus the dollar and stronger equity markets. "Copper has been caught up in the return to the risk trade," said Michael Gross, futures analyst with Optionsellers.com in Tampa, Florida. "In looking at today's pull-back, you possibly have some people considering London stock builds, but I also think you're probably just seeing a bit of profit-taking from the longs." Copper for September delivery on the COMEX metals division of the New York Mercantile Exchange dipped 3.10 cents to end at $3.3585 per lb. Since July 19, the key September contract is up 16 percent, on Monday hitting $3.3965 per lb., its highest level since late April. On the London Metal Exchange, copper for three-months delivery fell 1.1 percent to end at at $7,425 a tonne. Copper got a boost on Monday from positive European and U.S. manufacturing data. But data was more discouraging on Tuesday, with a steeper-than-expected drop in U.S. factory orders and a record low in home purchase contracts -- both implying an anemic economic recovery for the rest of the year. (Graphic: http://link.reuters.com/jac23n ) "From an economic point of view, it's going to be a long, ugly road," said John Gross, publisher of the Copper Journal. "It makes it that much more difficult to logically justify why the metal prices have moved up the way they have". The decline in copper and other base metals came against a mixed backdrop for the commodity complex, with grains retracing gains while oil rose as traders focused on the weaker dollar. Also weighing on copper slightly, LME copper's premium over Shanghai expanded to 1,344 yuan, meaning Chinese buyers have no incentive to buy LME copper on the cheap and sell it at better levels back home. (Graphic: http://link.reuters.com/puk23n ) ZINC ACTIVE In other metals, LME zinc was particularly active, with volume on LME's electronic trading platform nearing 11,000 lots in Europe following a surge in Shanghai. Prices ended down nearly 2 percent at $2,085 a tonne versus $2,122. Horsehead Holding Corp declared force majeure on some zinc oxide and special high-grade zinc contracts, which could last for several months following an explosion at the company's zinc refining facility in Monaca, Pennsylvania. Among other industrial metals, aluminum shed $13 to end at $2,204 a tonne, while lead edged up $6 at $2,220, after hitting $2,237, its highest since late April. Tin closed at $19,850 from $19,880, and nickel ended at $21,690 from $21,850. Tin earlier hit its highest level since September 2008 at $19,925 (Additional reporting by Maytaal Angel in London; Editing by David Gregorio)

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