UPDATE 1-Shanghai copper falls 3 pct as storm clouds gather

Shanghai copper prices fell 3 percent to a four-year low on Thursday, following a 4 percent slide on the London Metal Exchange as weak housing data, rising stocks and a firmer dollar continue to gnaw at market sentiment.

Other metals also fell, with London aluminium touching a new three-year low, dragging down its equivalent in Shanghai by more than 1 percent.

A record low for U.S. housing starts, surging inventories, plummeting equity markets and a dollar-firming flight to safety over growing uncertainty whether U.S. automakers will win emergency government loans all weighed on sentiment.

"Metals are a growth play, but there isn't any growth, so there is no reason to buy metals. People are liquidating and dumping assets," a dealer in Hong Kong said. "But we risk getting too directional, too comfortable being short. But we could see a pretty sharp snap higher if we ever see some bullish news again." London Metal Exchange copper for delivery in three months fell $30 to $3,560 a tonne by 0330 GMT after sliding 4.3 percent overnight. Shanghai's benchmark third-month copper contract fell 910 yuan to 28,140 yuan, and dipped as low as 28,800 yuan, its weakest since January 2005.

"We would recommend selling into rallies above $4,000 in the short term, but in the longer term, these prices are unsustainable and when demand improves in the later part of 2009, we should see prices pick up again," Yingxi Yu, analyst at Barclays Capital, said.

Chile's Codelco, the world's top copper producer, has offered term premiums for refined copper to China at $75 a tonne in 2009, down 32 percent from 2008. Codelco cut premiums to buyers in South Korea and Japan by between 35 and 36 percent.

"The market is pricing in a much weaker demand environment and Codelco's cuts should come as no surprise, given current recessionary fears," Yu said.

A Reuters poll suggested three-month copper prices could average $4,307 a tonne next year, versus an average above $7,300 so far this year.

But that forecast, less than half of July's record high, could be a stretch.

"I think 4,300 looks pretty optimistic. The first part of next year we will be at current levels or lower. Maybe we will have a bounce late in 2009 but I can't see prices up at the sorts of levels they are predicting," the trader said.

Aluminium fell $17.50 to $1,860.50 a tonne in electronic dealing, its weakest in three years.

LME stocks of aluminium rose 81,975 tonnes to more than 1.7 million tonnes -- the highest inventory level since January 1995.

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