* Nickel leads gains across base metals
* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl
* LME/ShFE arb: http://bit.ly/2wZSAEz (Updates with closing prices)
LONDON, Jan 31 (Reuters) - Copper rose 1 percent on Wednesday as the dollar slid towards its biggest monthly loss against the euro in two years while markets awaited the release of a U.S. Federal Reserve policy statement.
The metal used in construction shrugged off slightly softer than expected Chinese manufacturing data as the weaker dollar made assets priced in the U.S. unit cheaper for holders of other currencies.
However, with speculators cutting their net long positions in copper futures and options, copper may have further to retrace after falling 1.8 percent so far this month following December's rally to a near-four-year high, analysts said.
"We see most of the flows in recent weeks following the dollar, and broader reflation trading and asset reallocation," ING commodities strategist Oliver Nugent said.
"We do think prices remain too high compared to their fundamental justification, and if the (investment) flows keep behaving as they have, with positioning drawing out, we would expect a trend down in prices."
* COPPER PRICES: London Metal Exchange copper closed 1 percent up at $7,118 a tonne. Prices fell by 0.5 percent in the previous session.
* FINANCIAL MARKETS: The dollar fell, remaining on track for its biggest monthly drop in nearly two years as U.S. President Donald Trump's first State of the Union address failed to offer any comfort to ailing dollar bulls.
* FOMC: The Federal Reserve is due to release a statement at the end of its latest two-day policy meeting, at 1900 GMT. It is the last Fed meeting at which Janet Yellen will act as head of the central bank.
* NICKEL PRICES: LME nickel led gains across base metals, closing 1.9 percent up at $13,600 a tonne.
* NICKEL INVENTORIES: Nickel stocks in London Metal Exchange warehouses <MNISTX-TOTAL> fell another 2,280 tonnes to their lowest since September 2014, data showed on Wednesday.
* NORNICKEL: Russia's Norilsk Nickel said on Wednesday its fourth-quarter consolidated nickel output rose 11 percent quarter on quarter to 60,032 tonnes.
* OTHER METALS: LME zinc advanced 1.3 percent to close at $3,540 a tonne, while lead finished 0.8 percent up at $2,612 and aluminium gained 0.6 percent to $2,219.50. Tin finished 0.3 percent up at $21,680.
* JANUARY PERFORMANCE: LME tin has surged nearly 9 percent in the month to date, while metals affected by China's winter pollution crackdown also rallied. LME zinc and nickel were up more than 6 percent while lead rose more than 5 percent.
(Additional reporting by Melanie Burton in Melbourne; Editing by Dale Hudson and David Goodman)