By Alastair Himmer

SHANGHAI, Nov 13 (Reuters) World number two Rafael Nadal was upset 4-6 6-4 6-3 by fellow Spaniard David Ferrer at the season-ending Tennis Masters Cup today.

An inspired Ferrer won a pulsating baseline battle to improve his round-robin record to 2-0, virtually assuring himself a spot in the last four of the season-ending event in Shanghai.

Nadal, who beat Frenchman Richard Gasquet in his opener at the weekend, must now beat Serbia's Novak Djokovic in his final Gold Group match to advance.

Gasquet knocked Djokovic out of the showcase eight-man tournament with a 6-4 6-2 victory in the day's early match.

Nadal produced some astonishing recovery shots, including a no-look drop shot, where he scrambled to reach a stop-volley and dinked the ball across a stunned Ferrer while looking down the line.

But after taking a first set punctuated by five breaks of serve, Nadal faltered late in the second, Ferrer forcing him into a wild forehand to level the match.

Nadal, both knees taped after suffering from tendinitis coming into the tournament, had no answer to Ferrer's relentless pressure in the decider.

Ferrer, who beat Nadal in their previous meeting at this year's US Open, closed out a marathon tussle after two hours and 40 minutes with a pummelling cross-court backhand.

Nadal's defeat comes a day after World number one Roger Federer was stunned by Chile's Fernando Gonzalez in his opening Red Group match of the 4.45 million dollars event.

REUTERS AB HT2052