METALS-Copper slides as funds liquidate after weak China data

(Recasts with updated prices at 1600 GMT) By Eric Onstad LONDON, May 31 (Reuters) - Copper prices slumped on Friday after weak manufacturing data in top metals consumer China spurred funds to liquidate more bullish positions that helped send the market to a record last week. Prices briefly rebounded in the European afternoon after data showed U.S. inflation was steady, but the market soon went back into the red. Three-month copper CMCU3 on the London Metal Exchange was down 0.9% to $10,048 a metric ton by 1600 GMT, having slipped nearly 10% since touching a record high of $11,104.50 on May 20. China's manufacturing activity fell unexpectedly in May as a protracted property crisis in the world's second-largest economy continued to weigh on business, consumer and investor confidence. The official manufacturing purchasing managers' index (PMI) dropped to 49.5 in May from 50.4 in April, below the 50 mark that separates growth from contraction. "The Chinese numbers, being so soft and coming in below 50, might be something that make people reassess their demand forecasts from China," said Nitesh Shah, a commodity strategist at WisdomTree. Traders said the selling was mainly by funds that had previously piled in and fuelled the rally, which were now either taking profits or being squeezed as prices came down. The weight of selling overcame optimism from in-line U.S. inflation data that gave more confidence that the Federal Reserve may cut interest rates this year. LME copper has added 0.5% this month and about 17% this year. The rally by speculators and a short squeeze on the U.S. Comex exchange had sent U.S. prices to a premium of about $1,000 over LME levels. Comex prices have declined more than LME prices in recent days, narrowing the gap to about $75 a ton. June copper HGc1 futures dropped 2% to $4.58 a lb. In other metals, LME aluminium CMAL3 fell 1.6% to $2,661.50 a ton, nickel CMNI3 eased 1.5% to $19,765, zinc CMZN3 tumbled 2.9% to $2,984, lead CMPB3 dipped 0.1% to $2,275 and tin CMSN3 dropped 1.6% to $32,590. For the top stories in metals, click TOP/MTL ($1 = 7.2439 Chinese yuan renminbi) (Reporting by Eric Onstad Editing by David Goodman, Mark Potter and Paul Simao) (([email protected]; +44 20 7542 7093; Twitter https://twitter.com/reutersEricO; Reuters Messaging: [email protected])) ((For related news and prices, click on the codes in brackets: LME price overview RING= COMEX copper futures 0#HG: All metals news MTL All commodities news C Foreign exchange rates FX= SPEED GUIDES LME/INDEX ))