* Copper set to close week flat as traders eye holiday
* Signs of revival in zinc demand in Europe - Triland
* Coming Up; U.S. industrial output at 1415 GMT
(Adds analysts' comments, updates prices)
SYDNEY, Jan 17 (Reuters) - London nickel fell on Friday as traders locked in profits after a ban on Indonesian ore exports that came into force at the weekend triggered a rally that could lead to its biggest weekly gain in nearly a year.
Prices for refined metal have surged nearly 6 percent this week as traders bet that rising costs for producers of nickel pig iron, a low-cost alternative to refined nickel for makers of stainless steel, will lift the floor for LME nickel prices.
"Nickel's gains may just have been an initial reaction to the export ban and we could see it wash out a bit over the coming weeks," said James Glenn, analyst at National Australia Bank in Melbourne.
"There are plenty of stockpiles in China that should act as a bit of a buffer. But people will probably be watching the Indonesian (economic) numbers to see if there is any hint of distress from the export policy," he added.
A drop in exports may pile more pressure on Indonesia's slowing economy, forcing the government to water down its policy, some industry sources say.
Indonesia's nickel production will decline by 84 percent from last year to 9 million tonnes this year, the chief economic minister said on Thursday, as a ban on nickel ore hits output from the world's largest exporter.
Three-month nickel on the London Metal Exchange dropped by 0.4 percent to 14,630 a tonne on Friday. The metal is set to post its biggest weekly rise since early February 2013.
In other metals, copper was set to close the week flat as expectations of growing supply this year eclipsed a nearby shortfall in refined metal, with traders holding off on purchases ahead of the Lunar Near Year which starts at the end of the month.
Three-month copper on the London Metal Exchange was barely changed at $7,310 a tonne by 0244 GMT compared to the previous session when it lost half a percent. Prices reached a one-week high of $7,370 on Thursday.
The most-traded April copper contract on the Shanghai Futures Exchange slipped 0.2 percent to 51,690 yuan ($8,500) a tonne.
Expectations of global growth have fanned hopes that metals' fortunes may revive, although recovery is still tilted towards rich nations which use less metal than emerging economies.
A much better year lies in store for most of the world's major developed economies, although weak inflation will persist, complicating central banks' ability to get interest rates back to normal, Reuters polls forecast on Thursday.
Traders have already noted a recovery in demand for zinc, used in galvanising, in Europe.
"For the first time in months (if not years) we are seeing offers emerge for zinc on warrant in LME warehouse in Antwerp and Rotterdam," London-based broker Triland said in a note.
"There is immediate buyer interest in these warrants so that is encouraging for the state of the zinc market in general."
Three month LME copper
Most active ShFE copper
Three month LME aluminium
Most active ShFE aluminium
Three month LME zinc
Most active ShFE zinc
Three month LME lead
Most active ShFE lead
Three month LME nickel
Three month LME tin ($1 = 6.0557 Chinese yuan)
(Editing by Richard Pullin and Muralikumar Anantharaman)