* Aluminum hits 4-week high, inventories fall for 2nd day

* Weak dollar offers industrial metals support

* U.S. jobless claims fall for third straight week
(Recasts with closing U.S. prices, comments; adds NEW YORK
dateline/byline)

By Chris Kelly and Michael Taylor

NEW YORK/LONDON, June 4 (Reuters) - Copper rallied sharply on
Thursday, with London prices vaulting back up through the
psychological $5,000 level, as a weaker dollar, rallying crude oil
and encouraging data from the U.S. labor market combined to drive the
gains.

Aluminum prices rose more than 5 percent to their highest level
in four weeks, after a second straight day of inventory declines
boosted prices.

Copper for July delivery HGN9 on the New York Mercantile
Exchange’s COMEX division rallied 8.90 cents, or 4 percent, to settle
at $2.3010 a lb.

On the London Metal Exchange, copper for delivery in three months
MCU3 closed at $5,025 a tonne, up $110 from its close on
Wednesday.

Early this week, the metal, used extensively in power and
construction, rose to a 7-1/2-month high of $5,145 a tonne in London
and $2.3530 a lb in New York as stronger economic data fanned
recovery hopes.

Data Thursday rekindled those optimistic hopes.

The number of U.S. workers filing new claims for jobless benefits
fell for a third straight week, government data showed, indicating a
slower deterioration of the job market.

"We are continuing to see the labor market show some signs of
life," said Rob Kurzatkowski, a futures analyst with OptionsXpress in
Chicago.

Investors will now turn their attention to Friday’s U.S. non-farm
jobs data for May, which, according to a Reuters poll, are expected
to fall by their smallest amount in seven months. [ID:nN02510310]

A 5 percent rally in U.S. crude oil futures aided in the
broad-based rally in the metals complex, OptionsXpress’ Kurzatkowski
said.

"Oil is making up for yesterday’s losses and then some … it’s
getting everyone concerned about inflation again," he said.

Justin Lennon, an analyst at Mitsui Bussan Commodities in New
York, singled out the weaker dollar as a main driving force behind a
lot of new investment into base metals, as a weak U.S. currency makes
dollar-priced metals less expensive for holders of other currencies.
[USD/]

"Copper is fairly valued," he said. "China is going to be easing
up on its consumption of it and, while imports may appear stronger
than normal, that is due to the scrap situation."

On the corporate front, Rio Tinto (RIO.AX) (RIO.L) is looking at
new ways to deal with its huge debt burden, the mining group said in
response to reports its planned $19.5 billion stake sale to China’s
Chinalco has collapsed. [ID:nSYD357712]

ALUMINUM STOCKS FALL

Aluminum MAL3, used in transport and packaging, closed at at
$1,564.5 a tonne, up from $1,482. Earlier it hit $1,585, its highest
price since May 7.

Inventory data offered some respite for the metal. Stocks fell
for the second session in a row, dropping 6,900 tonnes to break a
relentless rise since April 20 that had brought levels to above 4.2
million tonnes.

But the outlook for aluminum is weak as potential production
restarts in China threaten to flood the market with material and as
the auto sector continues to languish.

"I’m worried that on any pick-up in prices, a lot of facilities
in China could get restarted, and that could temper any further
(price) rise," said Charles Kernot, a mining analyst at Evolution
Securities.

Among other industrial metals, zinc MZN3 closed at $1,575 a
tonne, up from 1,535, and lead MPB3 ended at $1,665 a tonne, up
from $1,615.

Tin MSN3 closed at $14,700 a tonne, versus $14,500, after
earlier hitting $14,800 — its highest point since mid-November.

Nickel MNI3 ended at $14,700 a tonne, up from $14,200.

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