Copper Crushed by Inventory Build

Updated from 11:49 a.m. EST

Copper prices plunged more than 7% Wednesday as concerns mounted about continued increases in metal stockpiles.

The benchmark copper contract for March delivery closed down 22.2 cents at $2.649 a pound on the Comex division of the New York Mercantile Exchange.

"The 'copper contagion' is once again in evidence," writes Edward Meir, an analyst at commodity brokers Man Financial, in a daily market brief. "Stocks were up again today, and we are in sight of the significant 200,000[-ton] mark."

Inventories of the metal in London Metal Exchange warehouses totaled 190,575 tons Tuesday, up from about 160,000 at the beginning of December. Analysts see the 2007 copper market in a surplus, a factor which should dampen future price rallies.

Meir says a "chart point" was broken at around $2.81, further magnifying the decline as technical traders piled on the selling.

A better-than-expected construction spending report from the Commerce Department did little to stem the price drop. November spending fell 0.2%, compared with a consensus forecast of a 0.6% drop and a revised prior period decline of 0.3%.

Copper is a vital part of both residential and commercial property, where it is used for electrical wiring. Therefore, copper traders typically pay close attention to reports on the health of the construction sector.

Shares of copper miner Freeport-McMoRan Copper & Gold(FCX Quote) were diving 9%, while those of Phelps Dodge(PD Quote) and Southern Copper(PCU Quote) were losing 3.3 % and 5.3%, respectively.