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) were diving 9%, while those of Phelps Dodge ( PD) and Southern Copper ( PCU) were losing 3.3 % and 5.3%, respectively.

Diversified miners weren't immune either, with Rio Tinto ( RTP) and BHP ( BHP) off 4.3% and 2.6%, respectively.

In the ferrous metals sector, Soleil downgraded AK Steel ( AKS) to hold from buy. The stock traded down on the news, off 2.7% recently.

As for precious metals, a strong opening for gold quickly gave way to a sharp reversal after bullish economic statistics were published by the Institute for Supply Management.

Prices for February-dated contracts closed down $8.20 at $629.80 an ounce on the Comex. The exchange-traded funds that hold bars of bullion, streetTracks Gold Shares ( GLD) and iShares Comex Gold Trust ( IAU), were both losing about 1.2%.

The ISM index grew to 51.4 for December, compared to a consensus forecast of 50 and a November reading of 49.5. A figure above 50 points to a growing manufacturing sector, and currency traders took the new data as an excuse to dump gold.

"The buying quickly turned into profit-taking on the release of the ISM data," notes James Moore, an analyst at the TheBullionDesk.com, in a daily market brief. "Today's movements reflect the current sensitivity to the dollar, although price dips have found good buying interest."

The greenback was recently gaining, with one dollar buying 119.36 yen, up from 118.81 yen late in the prior session. The euro was buying $1.3166, down from $1.3279 previously. Gold prices tend to move inversely with those of the dollar.

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