Updates prices at 1600 GMT

By Eric Onstad

LONDON, July 4 (Reuters) -Copper prices were steady on Thursday as investors balanced optimism over potential U.S. interest rate cuts with concern about high inventories and lacklustre demand in China.

Three-month copper CMCU3 on the London Metal Exchange (LME) was up 0.1% at $9,878 a metric ton by 1600 GMT.

The price had jumped 2% in the previous session for its biggest daily gain since June 6, but LME copper has eased 11% since its record high of $11,104.50 on May 20.

U.S. Comex copper futures HGc2 gained 0.8% to $4.57 a lb.

"It looks like the focus is once again turning to the potential for U.S. interest rates being cut," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

Global equities clocked up more record highs after U.S. data raised the probability that theFederal Reserve would cutinterest rates in September and sent the dollar index =USD lower. MKTS/GLOB FRX/

A weaker U.S. currency makes dollar-priced commodities less expensive for buyers using other currencies.

A renewed rally, however, not only requires lower interest rates, but also a pick-up in demand and shrinking inventories, Hansen said, adding that the market has adopted a wait-and-see approach.

Any move by copper closeto the psychological $10,000 level would be likely to spark profit-taking until fundamentals improve, he added.

LME copper inventories have surged 80% since mid-May to 186,275 tons. Stockpiles in Shanghai Futures Exchange warehouses have eased slightly in recent weeks but are still 10 times the level at the start of the year. MCUSTX-TOTAL, CU-STX-SGH

LME zinc CMZN3 slipped 0.1% to $2,988.50 a ton after earlier touching a five-week high.

The metal mainly used for galvanising steel was supported by gains in the ferrous market, where iron ore hit a one-month high.

"Most crucially, zinc is also benefiting from a feed shortage and the rising cost of production," said Al Munro at broker Marex.

In other metals, LME aluminium CMAL3 fell 0.8% to $2,527 a ton, nickel CMNI3 eased 0.3% to $17,265, tin SSNcv1 shed 0.3% to $33,260 while lead CMPB3 added 0.2% to $2,227.

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($1 = 7.2711 yuan)

Reporting by Eric Onstad
Additional reporting by Mai Nguyen in Hanoi
Editing by David Goodman and Paul Simao

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