* Dollar index up slightly near 2-week high
* Copper on track for first monthly fall since June
* China copper output rises 21 percent in September
LONDON, Oct 31 (Reuters) - Copper fell on Thursday on a strong dollar after the U.S. Federal Reserve's latest policy outlook turned out to be less dovish than some had expected, while growing supply and weak demand also weighed on the outlook for the metal.
Benchmark copper on the London Metal Exchange closed at $7,250 a tonne, down from a close of $7,289 on Wednesday.
Copper has traded in a $7,000-$7,420 range since early August due to swelling supply and slower demand growth in China and is on track to post its first monthly fall since June.
"We're in a market where the fundamentals are not giving a particularly strong price signal. That's why we are seeing prices meandering in this range," Gayle Berry, an analyst at Barclays, said.
"If we saw copper trading below $7,000, we could see a lot more investor participation, but at these levels the risk/reward of buying copper is not attractive as there is a lack of factors that can take prices much higher."
The dollar rose, as the euro fell, after the Fed kept its options open for tapering its bond buying.
The central bank kept its $85 billion-a-month stimulus plan intact but did not sound quite as alarmed about the state of the economy as some had anticipated.
The Fed's bond purchases have buoyed commodities over the past few years by driving liquidity towards the asset group.
Expectations for rising supply were also hurting the outlook for copper prices.
Analysts polled by Reuters this month expected the copper market to post a surplus of 182,000 tonnes this year, up from a previous forecast of 153,000 tonnes, and then balloon to 328,000 tonnes in 2014.
In China, copper output jumped by 21 percent to around 620,000 tonnes in September from a year ago.
Reflecting rising uncertainty about copper's prospects, hedge funds and money managers cut their bullish bets in copper futures and options in the week ended Oct. 15, a delayed report by the U.S. Commodity Futures Trading Commission showed on Wednesday.
In industry news, Glencore Xstrata beat market forecasts with copper output that rose over a third in the quarter, boosted by improvements in its Congolese and Chilean mines, as metals helped its trading arm perform in line with its expectations.
BHP Billiton's Leinster nickel mine in Western Australia was hit by a small earthquake early on Thursday, and all workers have been brought out from the underground mine safely, the company said.
Aluminium closed at $1,859 from a last bid of $1,892 on Wednesday, and zinc at $1,952 from a last bid of $1,969.
Lead closed at $2,185.50 from a close of $2,209, and nickel at $14,630 from a close of $14,750 on Wednesday. Tin, untraded at the close, was bid at $22,850 from $23,125
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