* LME/ShFE arb: http://tmsnrt.rs/2oQ5nm20 (Adds comments, updates prices, changes dateline from SYDNEY)
LONDON, Aug 25 (Reuters) - Copper extended its rally on Friday, largely driven by computer-driven funds as inventories continued to fall, but analysts warned that prices were over-extended and due a correction.
While inventories in warehouses registered by both the London and Shanghai exchanges showed further erosion, that and other supply/demand fundamentals did not justify the 17 percent price surge over the past seven weeks, according to Julius Baer commodities research analyst Carsten Menke in Zurich.
"I share the view that copper is over-extended and that a correction is due, but every correction needs a trigger," he said.
"One potential trigger is a rebound of the U.S. dollar, which could come over the weekend, depending on what is discussed in Jackson Hole, or from U.S. economic data."
Speeches are due later on Friday by Federal Reserve and European Central Bank heads Janet Yellen and Mario Draghi at the Jackson Hole, Wyoming, central banking symposium.
"The other trigger could be a confirmation of Chinese data showing that we are indeed heading for softer growth later this year or early next year," Menke added.
* LME COPPER: Three-month LME copper was up 0.5 percent at $6,720.50 a tonne by 0950 GMT, after rising as far as $6,747, the highest since November 2014.
* COPPER INVENTORIES: Weekly copper stocks in warehouses registered by the Shanghai Futures Exchange declined 8.2 percent to 187,444 tonnes <CU-STX-SGH>, data showed on Friday.
On-warrant inventories - those not earmarked for removal - in London Metal Exchange (LME) depots have halved to 112,950 tonnes over the past six weeks <MCUSTX-TOTAL>.
* ALUMINIUM: LME benchmark aluminum dipped 0.3 percent to $2,100.50 a tonne after LME inventories continued to rise. On-warrant stocks have gained 101,725 tonnes or 10 percent in around two weeks. <MALSTX-TOTAL>
* ALUMINIUM BACKWARDATION: Aluminium is finding support from expectations of a decline in supply as China braces for capacity shutdowns at its smelters over the winter months.
The LME "tom-next" spread for aluminum <CMALT-0>, which is the cost of borrowing metal for a day and often a flashpoint for positioning tension, has flared to a $10 backwardation.
* FERROUS: Iron ore and steel rebar futures in China cut gains, but extended their winning streak to a ninth straight week, backed by firm steel consumption in the world's top user.
The mixed outcome failed to give strong direction to zinc and nickel, which are both mainly used in steel making.
*ZINC/NICKEL: LME zinc added 0.2 percent to $3,125, while nickel shed 0.7 percent to $11,660.
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(Reporting by Eric Onstad; Editing by Mark Potter)