Updates prices as of 1617 GMT

By Polina Devitt and Julian Luk

LONDON, Sept 22 (Reuters) -Copper prices were on track for a weekly loss on Friday due to a strong dollar, high inventories and reduced risk appetite after the U.S. Federal Reserve signalled monetary policy would remain restrictive for longer.

Three-month copper on the London Metal Exchange (LME) CMCU3 was up 0.3% at $8,219 per metric ton at 1617 GMT. Its 1.8% drop on Thursday was the deepest daily decline since Aug. 1.

The U.S. dollar currency index was on track for its 10th consecutive weekly increase in the wake of the Fed decision, making dollar-priced metals less attractive to holders of other currencies. FRX/

"With rates this high now, investors face a dilemma – do they continue to hold no-yielding metal exposure, or switch to some other asset that offers rising returns," said Tom Price, head of commodities at Liberum.

Adding to the pressure on prices for copper, which is used in the power and construction sectors, inventories in LME-registered warehouses MCUSTX-TOTAL remained at their highest level since May 2022, and data by the ICSG showed that the copper market was in surplus in the January-July period.

The discount for near-term delivery versus the LME three-month copper contract CMCU0-3 was at a four-month high, indicating plentiful immediate supply.

In the longer term, the copper market should find support from demand from the green energy transition and economic stimulus in China, the world's top metals consumer, said Nitesh Shah, commodity strategist at WisdomTree.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 16.9% this week, according to the exchange.

Meanwhile, LME aluminium CMAL3 rose 1.3% to $2,240.5 per ton. LME's on-warrant stocks fell to a one-month low after new cancellations in three different locations, including South Korea's Gwangyang port, daily data showed. MALSTX-TOTAL, 0#MALSTX-LOC-GRD

LME nickel CMNI3 gained 1.5% to $19,410 a ton. The metal hit $19,100, its lowest level since July 2022, on Thursday.

Zinc CMZN3 was 1.5% higher at $2,551, lead CMPB3 added 1.4% to $2,214, and tin CMSN3 rose 2.8% to $26,330.

Reporting by Polina Devitt and Julian Luk in London; additional reporting by Swati Verma in Bengaluru; editing by Paul Simao, Kirsten Donovan

 For the top stories in metals and other news, click TOP/MTL or MET/L
For related news and prices, click on the codes in brackets:
LME price overview RING= COMEX copper futures 0#HG:
All metals news MTL All commodities news C
Foreign exchange rates FX=SPEED GUIDES LME/INDEX