Copper prices edged lower on Friday as worries about higher interest rates and soft physical demand in China curbed the appetite of investors who had sent prices to record highs.

Three-month copper on the London Metal Exchange was down 0.2% at $10,400.50 per metric ton by 0930 GMT.

"The rally will likely continue in the medium to long term, but in the short term we have to respect the fundamentals," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

LME copper touched a record high of $11,104.50 a ton on Monday, driven by speculators and computer-driven funds, but is down 2.4% on a weekly basis, on track for the worst week since the week ended Feb. 9.

"We have to accept that the latest rally has driven by financial investors, not by physical traders, in fact they've been selling into it, given the softness we're seeing in Chinese data, and that didn't improve at all this week," Hansen added.

Physical demand in China, the world's biggest copper consumer, has been dampened by the high prices. The usual premium to import copper into China has been flipped into a discount since mid-May.

The most-traded July copper contract on the Shanghai Futures Exchange edged up 0.1% to 84,050 yuan ($11,601.58) a ton.

Also dampening metals as well as wider financial markets has been robust U.S. and German economic data that bolstered prospects of interest rates staying higher for longer on both sides of the Atlantic.

"We've been looking for support in the metals space from the prospect for restocking as interest rates started to come down, but the prospect of U.S. rates being cut only once this year has deflated some of the investment appetite," Hansen said.

A normalisation between London and New York futures also weighed on prices after copper's rally was propelled by a short squeeze on the U.S. Comex exchange.

LME aluminium rose 0.9% to $2,644.50 a ton, zinc edged up 0.1% at $3,066.50, nickel gained 0.6% to $20,210, tin added 0.5% to $33,600 while lead eased 0.6% to $2,291.

($1 = 7.2447 yuan)

(Reporting by Eric Onstad; editing by David Evans)