METALS-LME copper hovers near 8-month low on demand worries

* Deflationary worries weigh on metal prices

* Aluminium hits 7-1/2 month low

* Dollar index hits eight-month peak

(Updates with official prices) LONDON, April 4 (Reuters) - Copper inched up on Thursday but was still hovering around its lowest level in eight months on concerns about high inventories and weak global demand, especially in top metals consumer China. Benchmark copper on the London Metal Exchange (LME) was trading at $7,405 by 1502 GMT, slightly up from Wednesday's close at $7,386.50. Earlier, the metal used in power and construction fell to a session low of $7,331.25 a tonne, its weakest since August 3. Volumes were thinner and prices more volatile than usual due to China being closed for a two-day holiday. LME copper has lost nearly 12 percent since touching a four-month peak in early February of $8,346 and is down about 7 percent so far this year. Weighing on metals demand prospects, data showed that the number of Americans filing new claims for unemployment benefits rose to its highest level in four months last week, suggesting the labor market recovery lost some steam in March. Recent soft U.S. economic data on manufacturing and jobs has given more firepower to speculators targeting lower prices. At the same time, demand in China, which accounts for 40 percent of world copper consumption, has been disappointing. "After the latest U.S. data there are higher deflationary worries and this is pulling metal prices below what fundamentals would suggest," T-Commodity consultant Gianclaudio Torlizzi said. "Until industrial players buy substantial amounts of metals though, prices are unlikely to bounce back." Stronger Chinese economic data, including recent numbers tracking factory activity, have failed to translate into physical metals demand so far. LME copper inventories <MCUSTX-TOTAL> rose another 6,850 tonnes on Thursday to 579,175 tonnes, the highest in a decade. While Wednesday's weak U.S. jobs data raised concerns about another set of payroll numbers on Friday, some analysts were more sanguine. "Going forward, probably the pace of improvement is going to slow because of the U.S. budget cuts, but things do not look as bleak as current price action would suggest," said analyst Stefan Graber of Credit Suisse in Singapore.

Friday's payrolls report is expected to show that U.S. employers likely hired at a moderate pace in March, suggesting the economy is gathering momentum despite the onset of across-the-board federal spending cuts.

While benchmark copper prices have lost ground, copper premiums in Singapore have climbed to their highest since May, fuelled by a port strike in top producer Chile, and a force majeure event called by India's largest copper smelter.

ALUMINIUM FINDS FLOOR? A strong dollar also capped gains in metals prices. The U.S. unit surged against a basket of currencies making metals priced in dollars more expensive for holders of other currencies. Three-month aluminium inched up slightly to $1,879 a tonne from a $1,871.50 Wednesday close, after having touched $1,862, its weakest since Aug. 22 . The fall in aluminium prices may have run out of steam since they have hit levels that are creating more pain for producers, said analyst David Wilson at Citigroup in London. "Maybe aluminium has found a floor. Even if you add in the high physical premiums, current prices suggest a big chunk of production is not going to break even," he added. Zinc also managed to rebound after touching a low of $1,849 a tonne, the weakest since Nov. 5, rising 1.6 percent in to $1,888. Nickel also rose, gaining 0.4 percent to $16,176 a tonne after touching a low of $15,980, the lowest since Nov. 16. Lead bounced 1 percent to $2,069.75 a tonne while tin was at $22,800 a tonne, from Wednesday's close of $22,700.

Metal Prices at 1425 GMT Comex copper in cents/lb, LME prices in $/T and SHFE prices in yuan/T

Metal Last Change Pct Move End 2012 Ytd Pct

move

COMEX Cu 335.30 2.00 +0.60 365.25 -8.20 LME Alum 1879.25 -4.75 -0.25 2073.00 -9.35 LME Cu 7430.75 44.25 +0.60 7931.00 -6.31 LME Lead 2073.75 23.75 +1.16 2330.00 -11.00 LME Nickel 16192.00 87.00 +0.54 17060.00 -5.09 LME Tin 22700.00 0.00 +0.00 23400.00 -2.99 LME Zinc 1889.25 32.25 +1.74 2080.00 -9.17 SHFE Alu 14565.00 -5.00 -0.03 15435.00 -5.64 SHFE Cu* 54070.00 -270.00 -0.50 57690.00 -6.27 SHFE Zin 14520.00 -145.00 -0.99 15625.00 -7.07 ** Benchmark month for COMEX copper * 3rd contract month for SHFE AL, CU and ZN

SHFE ZN began trading on 26/3/07

(Editing by Jason Neely and Alison Birrane)