* Metals weaken; copper eases from record; open interest eyed
* Technicals point to weaker copper prices
* Coming Up: German industrial output Oct; 1100 GMT (Updates prices)
By Nicholas Trevethan
SINGAPORE, Dec 8 (Reuters) - Metal prices fell on Wednesday in a technical correction after copper hit a record high in the previous session, easing under pressure from a stronger dollar and sentiment that prices had run ahead of themselves.
U.S. government bond yields rose, lifting the dollar and weighing on commodities after President Obama proposed a deal on tax cuts and unemployment payments that could boost economic growth in the short term but raise debt levels longer term.
Three-month copper on the London Metal Exchange fell 1.8 percent to $8,724.75 a tonne by 0706 GMT, after ending 1.1 percent higher on Tuesday, just off the record high at $9,044 struck earlier in the day.
"The move above $8,565 was a sign we had broken the downtrend and we are well above there. There was appetite (Tuesday) to push the market higher, but the move was probably overdone," a trader in Hong Kong said.
"On the upside we could check out the high above $9,000 but it would take a lot to push it through. A lot of the market is starting to square up for the year end I don't think there is enough out there to go higher. I am looking for a move back towards $8,500."
Reuters technical analyst Wang Tao, said copper may target $8,704 and then $8,600 on the downside based on a Fibonacci retracement analysis with any rebound likely limited to $8,800.
But weakness may be seen as a buying opportunity by Chinese investors holding short positions, which analysts say fall due by mid-month.
"There will be a lot of activity around the date. There is lots of open interest," the Hong Kong trader said.
LME open interest data shows more than 41,200 lots of copper, equivalent to more than 1 million tonnes of metal become prompt on Dec. 15. <
In other metals zinc fell 4.2 percent to $2,209 reversing the previous session's 3.8 percent gain.
"Zinc is pretty much following copper. All the markets had a run. In the case of zinc, there was quite a lot of arbitrage buying around these numbers, but it pushed on a bit too far and it's come back," the Hong Kong trader said.
In Shanghai, the benchmark third month copper contract >SCFc3> lost 1.7 percent to 65,3560 yuan a tonne.
Investors were assessing the implications of a change in rules that will allow the delivery of material from bonded warehouses against commodities traded on Shanghai's Future Exchange. [ID:nL3E6N70R6]
"This is a very interesting development. We are looking for more details on exactly how it will work," a trader in Shanghai said.
"But it should let us respond to changes in the relationship between London and Shanghai more easily. It should certainly free up the logistical lag."
The ability to deliver bonded stocks would increase flexibility for traders, as they could keep the material in Shanghai, but ship it out easily if domestic prices fall below international prices.
Base metals prices at 0706 GMT Metal Last Change Pct Move End 2009 YTD pct chg LME Cu 8724.75 -155.25 -1.75 7375.00 18.30 SHFE Cu* 65350.00 -1130.00 -1.70 59900.00 9.10 LME Alum 2254.00 -51.00 -2.21 2230.00 1.08 SHFE Alum* 16200.00 -130.00 -0.80 17160.00 -5.59 COMEX Cu** 398.15 -6.25 -1.55 332.75 19.65 LME Zinc 2209.00 -96.00 -4.16 2560.00 -13.71 SHFE Zinc 17925.00 -410.00 -2.24 21195.00 -15.43 LME Nickel 23465.00 -630.00 -2.61 18525.00 26.67 LME Lead 2329.00 -69.00 -2.88 2432.00 -4.24 LME Tin 24875.00 -225.00 -0.90 16950.00 46.76 LME/Shanghai arb^ 2640 Dollar/yuan 6.6605 \ 6.6610 ** 1st contract month for COMEX copper
* 3rd contact month for SHFE aluminium, copper and zinc
^ LME 3-m copper in yuan, including 17 pct VAT, minus SHFE third month (Reporting by Nick Trevethan; Editing by Ed Lane)