UPDATE 6-Copper recovers from 3-yr low on bargain hunting

* Copper and aluminium touch lowest since July 2005

* Copper recovers on bargain hunting, weaker dollar

* Price floor comes down in line with production costs

(Adds closing prices)

By Anna Stablum

LONDON, Nov 21 (Reuters) - Copper touched new 3-year lows before recovering on bargain hunting on Friday, but another rise in warehouse stocks and concerns over future demand for industrial metals capped any major advances.

"Until there is a turnaround in the physical demand picture it seems unlikely that these rallies will be sustained for any significant period of time," Leon Westgate, an analyst at Standard Bank, said.

Copper for three-months delivery on the London Metal Exchange fell to $3,375 per tonne, its lowest since July 2005, before closing at $3,540 from Thursday's close of $3,480. The metal fell around 3 percent on Thursday.

"It's a technical bounce back after a few really bad days," Westgate said. "The dollar has weakened against the euro which has helped."

A weaker U.S. currency makes dollar-priced metals cheaper for holders of alternative currencies. The dollar fell sharply against higher-yielding currencies as the rebound in equities prompted some investors to return to riskier assets.

Aluminium also hit three-year lows, and despite an intraday rally ended the day little changed.

GLOOMY OUTLOOK

"From a fundamental perspective things still look very ugly for at least the next couple of quarters," analyst Gayle Berry at Barclays Capital said.

Copper prices in London have dropped almost 6 percent so far this week on worries about demand, following weak housing data, problems in the auto sector, dismal jobs data and a slump in U.S. equities to their lowest in a decade.

"By looking at historical data the copper price could fall as far as $2,000 per tonne, analyst Michael Widmer at BNP Paribas said in a note.

"Production costs come with caveats. Yet, they can be a broad guideline for a bottom in metals quotations, as producers are unable to operate sustainably with negative margins."

One of the main difficulties when looking at production costs is that they have come down together with a general fall in commodity prices, in particular energy costs for miners.

"Freight, energy and iron ore costs are falling, so production costs are like a moving target," Berry said, adding that as the components of those costs begin to fall so does the price floor for the various metals.

Inventories of copper, used widely in power and construction, are currently at 283,125 tonnes, having risen around 20 percent so far in November.

Stockpiles in Shanghai Futures Exchange warehouses fell 3,797 tonnes, or 18 percent, to 17,699 tonnes, more than expected, but not enough to offset rising stocks and a growing surplus in the international market.

The International Copper Study Group (ICSG) reported the world refined copper market saw a surplus of 74,000 tonnes between January and August, versus a surplus of 22,000 tonnes in the year-ago period.

The picture is grimmer for aluminium. Inventories rose 2,025 tonnes to more than 1.72 million -- the highest since December 1994, pushing the three-month price to $1,745 per tonne, its weakest since July 2005.

"The market also appears to be pricing in expectations of further stocks builds," Berry said.

The metal, used in transport, power and packaging, closed at $1,748 per tonne from $1,785 on Thursday.

Aluminium prices could find a price floor at around $1,600, said Widmer, when looking at the production cost for miners.

The fate of U.S. car makers such as General Motors and Ford Motor Company remain uncertain.

U.S. President-elect Barack Obama's transition team is not exploring a pre-packaged bankruptcy plan for U.S. automakers, officials from the team said on Friday.

Battery material lead closed at $1,183 a tonne against $1,185/1,185.5 late on Thursday. Tin, which fell 7.6 percent in the previous session, closed at $11,500 tonne from $11,905 on Thursday. Nickel traded at $10,000 from $10,300 on Thursday.

Zinc was unchanged at $1,180.

Metal Prices at 1704 GMT Metal Last Change Percent Move End 2007 Ytd Percent

move LME Cu 3530.00 50.00 +1.44 6670.00 -47.08 SHFE Cu* 26950.00 -740.00 -2.67 56880.00 -52.62 LME Alum 1750.00 -35.00 -1.96 2403.00 -27.17 SHFE Alu* 13260.00 -155.00 -1.16 18180.00 -27.06 COMEX Cu** 161.85 5.00 +3.19 303.05 -46.59 LME Zinc 1175.00 -5.00 -0.42 2370.00 -50.42 SHFE Zinc* 9425.00 80.00 +0.86 18950.00 -50.26 LME Nick 9920.00 -30.00 -0.30 26350.00 -62.35 LME Lead 1165.00 -65.00 -5.28 2550.00 -54.31 LME Tin 11475.00 175.00 +1.55 16400.00 -30.03 ** 1st contract month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN SHFE ZN began trading on 26/3/07

(Additional reporting by Julie Crust, editing by Sue Thomas)