UPDATE 7-Nickel sees 2-yr low, growth fears weigh on copper

* Nickel hits fresh 2-yr low on weak stainless steel demand

* Copper ends shade higher as growth fears persist

* Oversupply worries undermine aluminium
(Recasts, updates with New York closing copper prices, adds U.S. housing data
and analyst comments)

By Anna Stablum and Pratima Desai

LONDON, July 25 (Reuters) - Nickel hit a two-year low on Friday as worries
about demand from stainless steel mills mounted, while copper managed to end in
positive territory despite growing fears of a global economic slowdown.

Three-month nickel MNI3 on the London Metal Exchange touched $18,250 a
tonne, the lowest since June 2006. It ended at $18,450 from $18,800 at the
close on Thursday. The metal has fallen by nearly 50 percent since early
March.

"It is no wonder that prices have fallen with demand being so weak,
stainless steel consumers are betting the price will fall further and therefore
delaying buying," said Leon Westgate, analyst at Standard Bank.

Nickel fell 6 percent on Thursday after stainless steel producer Outokumpu
(OUT1V.HE: Quote, Profile, Research) said it expected delivery volumes in the third quarter to fall and
expressed concern over the outlook for next year on the softening macroeconomic
picture.

However, some analysts said prices had fallen too far and that low stocks
could help nickel regain $20,000 a tonne.

Stocks of nickel in LME warehouses, at around 43,000 tonnes, are down
around 17 percent since the middle of April.

"We expect nickel to return to the $20,000 to $25,000 a tonne range soon,
which is fundamentally justified in our view," said Eugen Weinberg, analyst at
Commerzbank.

LOCOMOTIVE

Supporting industrial metals on Friday was a softer dollar, which makes
commodities priced in dollars cheaper for holders of other currencies.

An unexpected rise in U.S. durable goods data for June gave a brief boost
to copper -- seen as a gauge of economic growth and used in construction and
power. [ID:nN25397903]

"Durable goods was a good number, but its a very volatile indicator," said
Edward Meir, analyst at MF Global.

Better-than-expected data from the struggling U.S. housing sector provided
the red metal with additional underlying support.

Sales of newly constructed U.S. single-family homes fell by a
less-than-expected 0.6 percent in June to an annual pace of 530,000 annual
pace. [ID:nN24510279]

"The new homes sales figures came in a little bit better and they revised
up the prior month, so I think that there is at least some wishful thinking
that new home construction may improve going ahead," said Rob Kurzatkowski
futures analyst with optionsXpress in Chicago.

Still, analysts believed metals remained vulnerable to further downside
losses given the growing concerns about the global economic growth outlook.

"The macro situation is spreading out of the United States ... The global
economy can't grow without the locomotive of the United States behind it -- in
terms of it being such a huge import market," MF Global's Meir said.

However, a dominant holding of copper stocks and cash material is helping
nearby prices. The premium or backwardation for cash material over the
three-month contract is up at around $230 a tonne compared with below $220
earlier this week.

Copper MCU3 closed at $7,956 from $7,900 on Thursday, while in New York,
copper for September delivery HGU8 settled up 2.80 cents at $3.6050 a lb on
the the New York Mercantile Exchange's COMEX division.

London aluminium MAL3 ended at $2,970 from Thursday's settlement at
$2,951.

For aluminium, used in packaging, power and transport, selling pressure was
also reinforced by expectations of an oversupplied market this year.

"We see quite a strong ramp-up of aluminium production in China from new
smelters with captive power," said Jim Lennon, analyst at Macquarie Bank.

"To a certain extent that's offsetting the issues regarding power
availability (in China) and potential clampdowns on power supply through the
second half of this year."

China is the world's top producer and consumer of the energy-intensive
metal used in packaging, transport and power.

Analysts estimate the country could be producing 15 million tonnes of the
metal by the end of this year, out of a total of 40 million tonnes.

Tin MSN3 was last bid at $22,300 from $22,350, zinc MZN3 ended at
$1,845 from $1,860 and lead MPB3 at $2,115 from $2,170 at the close on
Thursday.

Metal Prices at 1745 GMT
Metal Last Change Pct Move End 2007 Ytd Pct

move
LME Cu 7956.00 56.00 +0.71 6670.00 19.28
SHFE Cu* 61020.00 -310.00 -0.51 56880.00 7.28
LME Alum 2969.00 18.00 +0.61 2403.00 23.55
SHFE Alu* 19105.00 20.00 +0.10 18180.00 5.09
COMEX Cu** 370.40 2.70 +0.73 303.05 22.22
LME Zinc 1835.00 -25.00 -1.34 2370.00 -22.57
SHFE Zinc* 15220.00 -255.00 -1.65 18950.00 -19.68
LME Nick 18350.00 -450.00 -2.39 26350.00 -30.36
LME Lead 2115.00 -55.00 -2.53 2550.00 -17.06
LME Tin 22300.00 -50.00 -0.22 16400.00 35.98
** 1st contract month for COMEX copper
* 3rd contact month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07
(Additional reporting by Lucy Hornby in Shanghai and Chris Kelly in New York,
editing by Matthew Lewis)