(Adds comment, updates prices) BEIJING, March 6 (Reuters) - Shanghai nickel prices rose sharply on Wednesday as low inventory levels and recovering demand kept the metal used to make stainless steel buoyant. London Metal Exchange nickel stocks <MNI-STOCKS> have declined for 10 days in a row to under 200,000 tonnes, while global exchange inventories of the metal were 47 percent lower year-on-year, according to Argonaut Securities. "China's nickel ore inventory also decreased 12 percent year to date. This, coupled with a ... demand recovery outlook will underpin further increase in nickel prices in our view," analyst Helen Lau wrote in a note. A downstream nickel Purchasing Managers' Index compiled by industry data provider SMM showed the first recovery in four months due to improved new orders, although the reading remains in contraction territory, Lau noted.

FUNDAMENTALS

* SHFE NICKEL: The most-traded May nickel contract on the Shanghai Futures Exchange rose as much as 1.9 percent to 106,380 yuan ($15,871) a tonne, its highest since Oct. 10, and stood at 106,110 yuan by the end of the morning session.