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METALS-Nickel falls as China cuts steel capacity, dollar climbs

(Updates prices) SYDNEY, Oct 27 (Reuters) - Chinese nickel futures dropped on Friday in line with steel prices and were on track to end the week sharply lower, with added pressure coming from a resurgent dollar. China is stepping up efforts to cut industrial production to combat smog, hitting demand for nickel, which is used to make stainless steel. China's government said on Friday that it had met its target for cutting steel capacity this year, with further curbs expected this winter when smog is typically heaviest. The country is the world's biggest consumer of nickel.

* SHFE NICKEL: The most-traded nickel contract on the Shanghai Futures Exchange had dropped 3.2 percent to 92,540 yuan ($13,908.47) a tonne by 0712 GMT. The contract was 1.5 percent lower on the week.

* LME NICKEL: Three-month London Metal Exchange nickel was down 2 percent at $11,500 a tonne.

* STEEL DOWN: The most active rebar contract on the Shanghai Futures Exchange was off 2.4 percent, down for a second straight session.

* DOLLAR: Metals were hit by a stronger dollar after the European Central Bank extended its bond purchases and reduced the chances that it would hike interest rates in 2018.

* LME COPPER: Three-month LME copper backtracked 1.3 percent to $6,898 a tonne, extending losses from the previous session to hit the lowest in almost two weeks at $6,892 a tonne.

* SHANGHAI COPPER: The most-traded ShFE copper contract was off 1.6 percent.

* LME ALUMINIUM: Three-month LME aluminium fell 1.5 percent after hitting a five-year-plus peak overnight as metal capacity cuts at Chinese smelters during the winter draws closer. Signs of a supply shortfall as LME inventories in London fell to a nine-year low also lent support.

* SHANGHAI ALUMINIUM: ShFE aluminium was down 1.1 percent, mostly holding gains from the previous session that saw the contract hit its highest in more than a week. "Support remained for aluminium as investors expect to see further tightness as Chinese producers cut production heading into winter," ANZ Bank said.

* INVENTORIES: Total stocks of aluminium in LME-registered warehouses fell 3,975 tonnes to 1.2 million tonnes, the lowest since September 2008 <MALSTX-TOTAL>. But Shanghai stocks have been steadily rising to an all-time high of 615,370 tonnes as of Oct. 20. <AL-STX-SGH>

PRICES

BASE METALS PRICES 0711 GMT Three month LME copper 6903.5 Most active ShFE copper 53990 Three month LME 2166

aluminium

Most active ShFE 16260

aluminium

Three month LME zinc 3174.5 Most active ShFE zinc 25415 Three month LME lead 2450 Most active ShFE lead 18635 Three month LME nickel 11515 Most active ShFE nickel 92540 Three month LME tin 19810 Most active ShFE tin 143700

BASE METALS ARBITRAGE

LME/SHFE COPPER LMESHFCUc3 245.99 LME/SHFE ALUMINIUM LMESHFALc3 -470.21 LME/SHFE ZINC LMESHFZNc3 406.88 LME/SHFE LEAD LMESHFPBc3 -1052.87 LME/SHFE NICKEL LMESHFNIc3 2023.15

($1 = 6.6535 Chinese yuan)

(Reporting by James Regan, Additional reporting by Melanie Burton; Editing by Joseph Radford and Sherry Jacob-Phillips)