UPDATE 3-Copper extends falls, heads for record monthly loss

* LME copper set for biggest monthly loss since at least 1970

* Shanghai copper down a record 41 percent in October

* Volatility could continue into Q1 2009

SINGAPORE, Oct 31 - London copper extended losses on Friday following a 10 percent slide overnight and headed for their biggest montly drop since at least 1970 after data showing a contraction in the U.S economy stoked recession fears.

London Metal Exchange copper has seen unprecedented volatility since the middle of the year, with prices down a huge 36 percent in October, despite an 8.5 percent rise this week.

U.S. gross domestic product shrank at a 0.3 percent annual rate in the third quarter as the sharpest pullback by consumers since 1980 overwhelmed the benefit from ramped-up government spending, the U.S. Commerce Department reported.

By 0710 GMT copper was down 4.5 percent at $4,020, following a 10 percent fall in the previous session that came on the heels of a 13 percent surge on Wednesday.

More data is due later on Friday, including the Chicago Purchasing Managers Index for October, while on Monday investors will be on the watch for U.S. auto sales. Copper demand is closely correlated with industrial production and growth.

Many metals are down by more than 50 percent from record highs set just a few months ago and despite a pick-up this week, a number of producers have seen margins disappear and are facing losses if prices continue at these levels.

"Most base metals have to recover from a demand and supply perspective. We will keep an eye on stockpiles and once they stop rising that will be a trigger for gains," Alex Passmore, mining analyst at Patterson Securities in Perth, said.

But he added that volatility in commodities markets was likely to continue into next year.

"Once credit markets unfreeze and people get used to new, lower asset prices, we should see volatility ease, but we will have to wait for Libor to come down, the U.S. election and even the Chinese new year in the first quarter of next year for that to happen."

Shanghai copper futures fell by their 5 percent threshold to 31,400 yuan ($4,592). Copper dropped a record 41 percent in October, more than twice the loss seen in the next weakest month, June 1996.

For a chart showing monthly price changes please click: https://customers.reuters.com/d/graphics/CMD_SHGMT1008.gif

Zinc hit its 6 percent threshold at the open, falling to 8,930 yuan after the rally in London shuddered to a halt.

"Copper is limit up one day, limit down the next and it has managed to stay more less on par with London in the past few days. It will keep tracking the LME as closely as it can, given the limits on trading," a dealer in Hong Kong said.

Adding to worries are slowing exports from China, which are eating into the country's huge demand for commodities -- copper consumption growth next year is seen falling to 6 percent, one third the rate in 2007 -- and even a major fiscal package by Beijing will likely only slow the decline.

Shanghai copper stocks fell 20 percent or 6,265 tonnes to 24,788 tonnes in weekly data released after the exchange closed, above expectations of a 13 percent fall.

For a graphic showing global copper stocks. please click:

https://customers.reuters.com/d/graphics/GLBCPSTX311008.gif Metals prices at 0330 GMT Metal Last Change Pct Move End 2007 Pct chg 08 LME Cu 4020.00 -190.00 -4.51 6670.00 -39.70 SHFE Cu* 31400.00 -1700.00 -5.14 56880.00 -44.80 LME Alum 2030.00 -35.00 -1.69 2403.00 -15.52 SHFE Alum* 13905.00 -550.00 -3.80 18180.00 -23.51 COMEX Cu** 188.85 0.00 +0.00 304.10 -37.90 LME Zinc 1120.00 -40.00 -3.45 2370.00 -52.74 SHFE Zinc 9095.00 -420.00 -4.41 18950.00 -52.01 LME Nickel 11500.00 -400.00 -3.36 26350.00 -56.36 LME Lead 1440.00 -80.00 -5.26 2550.00 -43.53 LME/Shanghai arb^ 1908 Dollar/yuan 6.8434 \ 6.8444 ** 1st contract month for COMEX copper * 3rd contact month for SHFE aluminium, copper and zinc ^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month