* Weak economic prospects, fear of China tightening cited
* Copper inventories hit 10-month highs (Recasts and updates with U.S. market activity and prices, changes dateline to NEW YORK, previously LONDON)
By Barani Krishnan
NEW YORK, April 27 (Reuters) - Copper slumped on Wednesday on nagging doubts over the U.S. economy and fears about tighter policy in China, but ended off the lows after the U.S. Federal Reserve gave no indication it was in a rush to raise rates.
Talk of another round of monetary tightening by China hit sentiment early in the session. Prices failed to recover losses even after the dollar slumped as Fed Chairman Ben Bernanke signaled he would likely keep U.S. interest rates exceptionally low for an extended period..
Earlier, data showing new orders for long-lasting U.S. manufactured goods rose more than expected in March and bookings for the prior month were much stronger than initially thought failed to offset the gloom of a market enduring one of its weakest seasonal demand periods, analysts said.
Benchmark copper on the London Metal Exchange closed down $224, or 2.2 percent, at $9,321 after stockpiles of the metal at warehouses monitored by the LME hit 10-month highs. It's down four percent over the past two sessions, the biggest such loss in a month hand a half.
In New York, U.S. copper futures for May delivery on COMEX settled down 9.10 cents, or 2.1 percent, at $4.2280, but later pared losses to trade at around $4.2575.
Investors' concerns on Wednesday centered on a portion of the Fed statement which said the economic recovery was proceeding at a moderate pace and was not strong enough to justify raising rates in the interim period.
Bernanke reiterated the central bank's stance in its first post-meeting news conference, during which the dollar fell to a near record low against a basket of major currencies
"The Fed left a bad taste in everyone's mouth about the state of the economy," said Matthew Zeman, head of trading with Kingsview Financial in Chicago.
CHINA RATES
Talk was also swirling that No. 1 copper importer China may embark on another monetary tightening by the end of this week that could further hit sentiment in the metal.
"It's a cumulative worry that's pulling copper down, if you consider that people are thinking what the forthcoming U.S. GDP numbers would be from here and what the Chinese could also do by the end of this week," Sterling Smith, analyst at Country Hedging Inc. in St. Paul, Minnesota, said.
"Also, there's a saying in the copper market about demand around this time of the year: 'Sell in May and go away.' We are, in fact, very close to May," Smith said.
LME copper inventories rose 3,400 tonnes to 463,500 tonnes by the close of Tuesday's business, touching their highest levels since mid-June last year and after rising in 13 of the last 15 sessions.
Aluminum, untraded at the close, was bid at $2,743.50 from a close of $2,747 on Tuesday.
Key Chinese industrial provinces have been hit by power shortages which have threatened to shut some small aluminum smelters, and larger ones face lower prices. Aluminum is one of the most energy-intensive metals to produce.
China, the world's biggest market and maker for aluminum and lead, normally hits peak electricity demand in the summer and can often face shortages, leading to supply cuts for intensive energy users.
Zinc, used in galvanizing, closed at $2,240 from $2,260 at the close on Tuesday.
"Zinc's relative underperformance is in keeping with its weaker fundamentals ... with LME and SHFE stocks continuing to rise ...the global market in surplus and output growing strongly," Barcap added.
Tin, untraded at the close, was bid at $31,995 while battery material lead ended at $2,498 from $2,558. Three-month nickel finished at $26,630 from $26,650.
Metal Prices at 1910 GMT Metal Last Change Pct Move End 2010 Ytd Pct
move COMEX Cu 424.75 -7.15 -1.66 444.70 -4.49 LME Alum 2743.50 -3.50 -0.13 2470.00 11.07 LME Cu 9321.00 -224.00 -2.35 9600.00 -2.91 LME Lead 2497.00 -61.00 -2.38 2550.00 -2.08 LME Nickel 26630.00 -20.00 -0.08 24750.00 7.60 LME Tin 31995.00 -705.00 -2.16 26900.00 18.94 LME Zinc 2240.00 -20.00 -0.88 2454.00 -8.72 SHFE Alu 16810.00 -25.00 -0.15 16840.00 -0.18 SHFE Cu* 69550.00 -350.00 -0.50 71850.00 -3.20 SHFE Zin 17245.00 -95.00 -0.55 19475.00 -11.45 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07
(Additional reporting by Sue Thomas and Melanie Burton in London)