UPDATE 5-LME copper closes down 2 pct as China buyers hold back

(Updates to LME close, adds comment paragraphs 8 and 10)

By Alastair Sharp

LONDON, April 8 (Reuters) - London copper closed down 2
percent on Tuesday as near-record prices discouraged physical
buying from China, though supply concerns and dwindling
inventories maintained a floor, analysts said.

Investor focus has shifted to Chile, where a major copper
conference is focusing on lagging supply and the future
direction of Chinese demand. [ID:nN07225015]

Copper for delivery in three months MCU3 on the London
Metal Exchange, often considered a key gauge of real economic
activity, dropped $190 or 2.2 percent to $8,540 per tonne by the
end of the official open outcry session.

On Monday it traded up to $8,759, its highest since touching
an all-time peak of $8,820 on March 6.

"Chinese buyers are sitting on the sidelines in the hope
that prices come off, but they still have to feed end-users
demand," said Gayle Berry, metals analyst at Barclays Capital.

Chinese inventories are being run down after a prolonged
absence from the market, and buyers will likely be forced to
re-enter the market in the second quarter, traditionally a
strong period for copper.

The wider commodities markets also closed broadly lower with
gold <XAU=> trading at $911.70/912.60 an ounce at 1552 GMT
versus $923.70/924.50 in late trade in New York on Monday.

PRECIOUS DECLINE

"There has been a big sell-off today in precious metals,"
said Nick Moore, metals analyst at ABN AMRO, adding that
investors had closely watched Monday's first quarter results
from aluminium producer Alcoa (AA.N: Quote, Profile, Research) for signs of weakness in
commodity-based equities.

Alcoa said on Monday that first-quarter profit was cut in
half from a year ago, as higher energy costs and a weak dollar
offset a surge in the metal's price.[ID:nN07290137]

"The big battle has been between fears of U.S. economic
recession and the implications of that on global growth, and the
offset of supply losses which have overwhelmed those fears,"
Moore said.

Recent years have been characterised by strikes, power
shortages and other supply disruptions in an already
finely-balanced market.

"Given a starting point near record highs, we don't need too
much to trigger a small correction in the price, which is what
we're seeing," Neil Buxton, managing director of GFMS Metals
Consulting, said.

Copper has gained 28 percent so far this year, making it one
of the strongest-performing assets on financial markets, as
investors have bought the metal in the expectation that Chinese
demand will offset any slowdown caused by a U.S. recession.

"People are concerned that 2008 is going to be another year
of underperforming mine supply," Barclays' Berry said.

"That is why the cash to three-month backwardation has
flared out to about $145," she said, citing tight inventories.

The backwardation -- extra money paid for cash metal MCU0
over the three-months price -- was at around $95 a month ago.

Analysts said prices might fall as Chinese buying in the
second quarter could disappoint as high prices dent demand. But
other market observers believed that prices might test a new
record high on potential supply problems in Chile and Africa.

Aluminium MAL3 was down $10 at $2,988 per tonne, zinc
MZN3 shed $65 at $2,350, lead MPB3 was $65 down at $2,895.

Tin MSN3 was up $50 at $20,400/20,450 per tonne and
steelmaking raw material nickel MNI3 was down $150 at $28,875.
(Reporting by Alastair Sharp, additional reporting by Daniel
Magnowski and Anna Stablum, editing by Nigel Hunt)