LONDON, May 30 (Reuters) - Copper prices dropped on Thursday as funds sold off bullish positions, triggered by concerns that high interest rates are dampening metals demand, particularly in top consumer China.

Three-month copper on the London Metal Exchange slid 2.7% to $10,178 per metric ton by 1000 GMT, moving further away from a record peak of $11,104.50 touched last week.

"The recent high flyers are the ones receiving a punch to the belly today. We have broken the uptrend from early March so this looks like technical selling and long liquidation," said Ole Hansen, head of commodity strategy at Saxo Bank in Copenhagen.

"We know there was quite a sizeable build up in speculative positions in the past months and some of these positions are getting squeezed."

The pullback in industrial metals was part of a wider move in financial markets where risk sentiment was hurt by concerns that global interest rates would stay higher for longer due to sticky inflation.

Also weighing on metals was a firmer dollar index, which climbed to a two-week high as a rout in U.S. Treasuries pushed up yields.

A stronger dollar makes commodities priced in the U.S. currency more expensive for buyers using other currencies.

LME copper was at risk of a deeper correction that could take it down to $9,700, but at that level buying was likely to kick in due to a bullish medium and long-term outlook by most investors, Hansen added.

LME aluminum shed 1.7% to $2,720.50 after hitting a near two-year high on Wednesday.

Shanghai aluminum prices notched a two-year high, having tracked the surge in London prices.

"Ex-China prices were driven by supply disruptions because of Western sanctions on Russian metals," a Beijing-based analyst said.

Demand for the light metal has been robust, underpinned by solar and electric vehicle sectors.

In other metals, nickel fell 1.8% to $20,115 a ton, zinc eased 1.9% at $3,044, lead slipped 1.5% to $2,284.50 and tin slid 2.3% to $33,335.

For the top stories in metals, click (Reporting by Eric Onstad; Additional reporting by Siyi Liu in Beijing; Editing by Varun H K)