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Copper edged lower in London on Wednesday under pressure from a sharp jump in stocks, but lead prices sustained gains and pushed to a new high, dealers said.

Three-month copper on the London Metal Exchange (LME) eased to $7,316 a tonne in the second open-outcry session of the day, from $7,380 on Tuesday.

Lead, however, extended its rise to post a fresh contract high of $1,650, up $40 from Tuesday.

"People are getting excited about the less-liquid contracts like lead, which are hitting new peaks," a fund source said.

"But perhaps there are better buying opportunities in bigger volume contracts such as copper, which have under-performed."

The source said a view held earlier this year by much of the market that copper was going to spike in the fourth quarter was changing.

"But there are signs of life, signs of buying from China, and I think there is potential for prices to get back to May's peaks."

Copper stocks rose 4,675 tonnes overnight to 135,175, up 20 percent since mid-October.

Increased availability has meant that the premium for cash metal has given way to a discount, known as a contango.

The cash-threes spread was at a $20/$10 contango, maintaining the discount for a second day for the first time since late 2003.

"The forward spreads have really collapsed. There are expectations that material is going to continue to come in and I really can't understand why the copper price doesn't have a six at the start of it," a trader said.

"And even at $6,000, I would say it was over-priced. It's probably the strength in gold that is supporting the market."

Spot gold was trading about $5 higher at $610.40 an ounce, while oil was down 30 cents at $58.43 a barrel.

PRICE FALL

Copper prices have fallen by almost 16 percent since they hit a record $8,800 in May on a flood of fund buying, which has largely dried up.

"There is a shift in emphasis away from a market in deficit, transitioning towards one in balance or surplus, and the inventories are a window on this," ABN AMRO commodity analyst Nick Moore said.

Despite falling from its peaks, copper remains well above long-term average prices around $2,100, and Mexico's Southern Copper Corp., one of the world's top producers of copper and a unit of Grupo Mexico, sees prices holding strong because of hefty demand from China.

Zinc was indicated $10 higher at $4,220/4,235 after touching a fresh record high of $4,290 on Tuesday.

Dealers say zinc stocks, currently just above 100,000 tonnes, to continue to fall for the rest of this year and that prices may touch $5,000. Stocks have fallen in a straight line from around 620,000 tonnes in mid-2005.

Three-month aluminium was down $10 at $2,780/2,781.

"A lot of the fund interest in aluminium is via the options market. There is a big slice of call options at $3,000 for December and there is a good chance the market will hit $3,000 in early December, a second trader said.

"The interesting thing will be to see what happens after those options expire and whether prices can be sustained at anywhere near these levsl," he added.