LONDON, Oct 30 (Reuters) - Copper fell by almost 5 percent on Thursday as rising London Metal Exchange stocks halted this week's short-covering rally in industrial metals.

"We have never seen moves like this before ... it is unchartered territory," said Kevin Norrish, analyst at Barclays Capital.

He said the extreme price volatility was related to macro-economic concerns, huge movements in interest rates and exchange rates and very low levels of liquidity.

"What we have seen over the last few days is a short-covering rally in a situation where people are still very negative about the outlook," Norrish said.

Three-months copper fell 4.9 percent to an intraday low of $4,425 a tonne after LME stocks came in at 223,875 tonnes, up 6,575.

Higher stocks reminded investors yet again that demand for industrial metals is falling sharply and prices turned lower after rising by 3.5 percent to a 1-week high of $4,820 earlier.

By 1054 GMT copper -- often seen as a key gauge of real economic activity -- traded at $4,487.50, down from $4,655 at the close on Wednesday, when it surged 12.6 percent.

Prices have risen around 20 percent so far this week as investors have covered their short positions, but for the month prices are still down 30 percent, which at the end of the month could be the biggest fall in at least three decades.

"Focus is still on China, and there is a lot of concern about the potential of further big declines in export levels and debate over the extent of the stimulatory measures that have been announced if they will really help," Norrish said.

On Monday, prices dipped to $3,590 a tonne, their weakest for more than three years.

Nickel surged 14 percent on Wednesday as short positions were covered but, like the other metals, prices fell after the stocks data hitting a low of $12,600, down 7.6 percent.

It was later at $12,800 against $13,640 on Wednesday.

Lead dropped, down 5.1 percent to a low of $1,500 before being indicated at $1,510 versus $1,580.

Zinc stocks also came in higher at 182,100 tonnes sending prices to a low of $1,215 before trading at $1,222.

On Wednesday, zinc closed at $1,260 a tonne.

In early trade sentiment was supported by dollar weakness, with the U.S. currency posting its biggest one-day fall in 23 years against a basket of currencies after the Fed delivered an expected 50 point rate cut and China's central bank also cut rates.

"The U.S. rate cut yesterday caused a short-term bubble but markets soon came back to the recent trend with prices trading lower," said an LME trader.

Direction later on Thursday will be geared towards U.S. third quarter GDP data, seen falling by 0.5 percent versus a 2.8 percent rise in the second quarter, and how equity markets react.

Britain's leading FTSE share index was up 1.9 percent, supported by hefty rises in mining shares including Kazakhmys gaining over 15 percent.

Earlier the Kazakh copper producer said it may cut copper output next year due to lower projected spending arising from global financial instability.

"If we reduce our expenditures we will probably produce slightly less (copper) in 2009," Kazakhmys spokesman John Smelt said.

Producers have started to cut back production across the metals as falling prices put profit margins under pressure.

"There has been a lot going on the supply side, that is not surprising as the massive price decline that we have seen has resulted in a dramatic compression of producers' margins," Barclays Capital's Norrish said.

In other industry news, Russia's richest man, Oleg Deripaska, became the first beneficiary of a Kremlin-backed rescue package when his flagship company secured a $4.5 billion loan needed to keep its stake in Norilsk Nickel.

LME tin shed 5.7 percent at one point to a low of $15,350 against Wednesday's close of $15,225. It traded last at $14,650 and tin prices are up almost 50 percent since plunging to a 21-month low of $10,300 on Oct. 24.

In contrast to most other metals, tin stocks have fallen steadily during 2008. LME inventories of the metal have dropped 75 percent since August last year to 3,770 tonnes.

By contrast, copper stocks have risen by around 80 percent in the same period.

Metal Last Change Pct Move End 2007

Ytd Pct
move
LME Cu 4475.00 -180.00 -3.87 6670.00 -32.91
SHFE Cu* 33100.00 1280.00 +4.02 56880.00 -41.81
LME Alum 2120.00 -31.00 -1.44 2403.00 -11.78
SHFE Alu* 14455.00 260.00 +1.83 18180.00 -20.49
COMEX Cu** 203.85 -4.20 -2.02 303.05 -32.73
LME Zinc 1210.00 -50.00 -3.97 2370.00 -48.95
SHFE Zinc* 9515.00 290.00 +3.14 18950.00 -49.79
LME Nick 12700.00 -940.00 -6.89 26350.00 -51.80
LME Lead 1500.00 -80.00 -5.06 2550.00 -41.18
LME Tin 14500.00 -725.00 -4.76 16400.00 -11.59