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Zinc prices fell flat after several days of successive record highs on the London Metal Exchange, but copper firmed on Thursday after sharp falls the previous day.

"People are getting more and more sceptical, prices have been overdone and copper is probably one of the most overpriced commodities out there," a European trader said.

Three months copper dropped over four percent in the previous session but by 1157 GMT was quoted at $7,190/7,205 a tonne, up one percent since the close of $7,120.

Initial support was seen at $7,120 but traders said the market might test $6,500 and go lower if it broke below $7,000.

"It could be a few thousand bucks correction and on the upside we will see it capped -- at the moment people will take profit on any rally," the trader said.

Copper remained under pressure and dampened sentiment in the rest of the metals market as stocks continued to rise.

LME warehouse inventories rose 2,325 tonnes to 146,575, and traders said more stocks could be on their way.

Stocks have risen by 25 percent since mid-October.

"If you look at the physical market there is more and more copper available so you are bound to see the cash price come off a bit and a slight contango at the front," the trader said.

Rising stocks erased copper's cash premium earlier this month for the first time in three years.

Cash copper is now trading at a discount, or contango, of $17/12 a tonne, compared with a $240 premium, or backwardation, at its peak in June.

A backwardation allows investors to make money by lending metal to the market by selling cash and simultaneously buying three-months contracts, pocketing the difference.

"Whether or not that contango will stay depends on how much demand will pick up," the trader said.

ROLLING FORWARD

Copper and aluminium were also under pressure as commodity index investors rolled positions forward, which was seen keeping a lid on prices to the end of the week.

Investors would be monitoring contract talks at the Codelco Norte division of Codelco.

Also, investors were keeping an eye on Zambia's Konkola Copper Mines (KCM), which halted copper production at its Tailings Leach Plant after a spill polluted a river.

Before the production halt, KCM planned to produce 200,000 tonnes of finished copper by December 2006.

Aluminium lost 2.8 percent in the previoUs session but was supported by consumer buying at the lower numbers.

Three months aluminium was indicated at $2,742/2,745, up 0.9 percent, against $2,717 on Wednesday.

Prices rose from around $2,450 in mid-July to a high of $2,832 on October 30, with speculators putting more than $5 billion into the aluminium market in the past five months.

"The sheer quantity of metal the major funds have had to buy...suggests a large, and very unstable, long position which could make the market very problematic once the year-end tightness is past," economist John Kemp at Sempra Metals said.

ZINC AND LEAD SOFTER

Zinc and lead softened on profit-taking after recording new highs of $4,535 and $1,755, respectively, on Wednesday.

"There is a sense among many of the investment funds that copper is now yesterday's trading play and can be safely ignored and even allowed to retreat even as the others continue to make fresh highs," Kemp said in a note.

Zinc was flat at $4,420/4,440 after falling 1.8 percent in the previous session.

LME stocks continue to slide, down 925 tonnes to 96,800, their lowest since March 1991.

Prices have soared by more than 130 percent since the start of the year as consumption has outpaced production, taking stocks to critically low levels.

Lead was quoted at $1,700/1,720, down 0.9 percent against $1,715.

Nickel was quoted at $29,750/29,950 versus $30,100 on Wednesday, when the metal dipped by nearly 4 percent.