* Copper up more than 1 pct as base metals rally across the board
* GRAPHIC-2018 asset returns: http://tmsnrt.rs/2jvdmXl
* LME/ShFE arb: http://bit.ly/2wZSAEz (Updates with official prices)
LONDON, Jan 31 (Reuters) - Copper rose by more than 1 percent on Wednesday and base metals rallied across the board as the dollar fell before the release of a Federal Reserve policy statement.
The red 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, having fallen 1.5 percent so far this month after 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," said ING commodities strategist Oliver Nugent.
"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 was up 1.3 percent at $7,139.50 a tonne in official midday trading. Prices had dropped 0.5 percent in the previous session, touching their lowest in nearly a week at $6,994.
* FINANCIAL MARKETS: The dollar fell on Wednesday and held 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 U.S. Federal Reserve Open Market Committee will issue a statement at 1700 GMT, with most analysts expecting the bank to hold rates steady but take a hawkish position on the economy.
* NICKEL PRICES: LME nickel led gains across base metals, up 1.6 percent in official trading at $13,565 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 was up 0.9 percent at $3,527 a tonne in official rings, while lead was up 1 percent at $2,618 and aluminium was 0.7 percent higher at $2,222. Tin, untraded in official rings, was last bid up 0.5 percent at $21,725.
* JANUARY PERFORMANCE: LME tin has surged more than 8 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 by almost 5 percent.
(Additional reporting by Melanie Burton in Melbourne; Editing by Dale Hudson and David Goodman)