METALS-Shanghai copper up on US GDP; zinc stocks surge

* Shanghai metals rally, lagging LME gains

* GDP data underpins hopes of further demand recovery

* ShFE copper stocks up 7 pct; zinc leaps almost 25 pct

SINGAPORE, Oct 30 - Shanghai base metals rose on Friday, chasing steep gains in London futures in the previous session on stronger-than-expected U.S. growth data for the third quarter.

Washington's first estimate of U.S. gross domestic product showed the economy expanded at an annual rate of 3.5 percent in the third quarter, suggesting it was emerging from the worst recession in 70 years, marking the first quarterly expansion after more than a year of contraction.

Shanghai stocks data released after the market closed captured the limelight.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange rose 7 percent during the week to 102,835 tonnes, at the top end of expectations, while zinc inventories soared to 145,536 tonnes from 117,706 tonnes.

"Rising zinc prices have encouraged small smelters to run at full capacity. Their products, usually at lower prices, are flooding the market," said Liu Xu, an analyst at China International Futures.

"While consumption is slowly ebbing, especially in the south where production for the Christmas orders is almost over. I expect zinc stocks to keep rising, because smelters are unlikely to cut production any time soon."

For graphics showing global metals stocks, click: http://graphics.thomsonreuters.com/109/GLB_ALISTK301009.gif http://graphics.thomsonreuters.com/109/GLB_CPRSTK301009.gif http://graphics.thomsonreuters.com/109/GLB_ZNCSTK301009.gif

Shanghai's benchmark third month zinc contract rose 2.2 percent to close at 16,830 yuan before the stocks data was released. On the month it rose 9.8 percent.

When Shanghai closed LME zinc was down $10 at $2,255 but losses accelerated after the inventory report, falling to $2,227 by 0927 GMT, 1.7 percent down on the day, but on course for a 13 percent monthly rise.

"People have known there was a lot of spare zinc around in China. Why it came to warehouse now is hard to say. This could be a delivery against short positions but it's a little early," a Shanghai trader said.

Three-month copper on the London Metal Exchange pared Thursday's 3.7 percent surge, easing 0.3 percent to $6,644 a tonne. On Monday, copper touched a 13-month high of $6,732.

Shanghai copper rallied 2.3 percent to end at 51,200 yuan.

"The bulls are back in charge after falling prices for most of the week. For me it's not a cause for celebration. This market has run too far ahead of itself. We needed a bigger correction to build a strong base for the next leg up," a dealer in Melbourne said.

"The risk we face is that we lack a strong foundation and if we rally, then reverse, we may be in for a bloodbath."

LME copper is on track for a 7.6 percent monthly gain after September's decline, but Shanghai futures lagged, up 6.2 percent for the month.

That was likely to remain the case, dealers said, unless London futures broke sharply higher, spurring Chinese buyers afraid to get left out of a rally.

"Shanghai probably won't catch up with LME gains. Investors are waiting to see if London breaks Monday's high. Until then domestic customers will sit on their hands," another dealer in Shanghai said.

"But if LME gets to $7,000, Chinese buyers will race back in, adding to longs. Demand on the physical side is still slow, but again a break higher would bring consumers back to the market as buyers." Base metals prices at 0927 GMT Metal Last Change Pct Move End 2008 Pct chg 09 LME Cu 6644.00 -20.50 -0.31 3060.00 117.12 SHFE Cu* 51200.00 1170.00 +2.34 23840.00 114.77 LME Alum 1950.00 -5.00 -0.26 1535.00 27.04 SHFE Alum* 15235.00 115.00 +0.76 11540.00 32.02 COMEX Cu** 302.10 0.00 +0.00 139.50 116.56 LME Zinc 2227.00 -38.00 -1.68 1208.00 84.35 SHFE Zinc 16830.00 365.00 +2.22 10120.00 66.30 LME Nickel 18600.00 -90.00 -0.48 11700.00 58.97 LME Lead 2361.00 -4.00 -0.17 999.00 136.34 LME Tin 14775.00 -225.00 -1.50 10700.00 38.08 LME/Shanghai arb^ 1873 Dollar/yuan 6.8274 \ 6.8298 ** 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