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METALS-Copper on track for biggest weekly gain in over a year

* LME/ShFE arb: http://bit.ly/2wZSAEz (Updates throughout, changes dateline from MELBOURNE)

LONDON, Feb 16 (Reuters) - Copper edged up on Friday and headed for its biggest weekly gain in more than a year as the dollar continued to decline, while zinc climbed on depleting stocks.

Benchmark copper on the London Metal Exchange rose 0.7 percent to $7,235 a tonne by 1155 GMT. The metal, used in power and construction, is up 7 percent so far this week in its best performance since November 2016.

"The return of risk appetite that we are seeing through a strong rebound in stock markets, inflation expectations and the weaker dollar has been supportive for industrials, which are enjoying the investment demand," Saxo Bank analyst Ole Hansen said.

DOLLAR: The dollar slipped to a three-year low against a basket of currencies, headed for its biggest weekly loss in two years, as bearish factors offset support the U.S. currency could take from rising Treasury yields.

The U.S. currency has been weighed down by a variety of factors this year, including concerns that Washington might pursue a weak-dollar strategy and the perceived erosion of its yield advantage as other countries start to scale back their easier monetary policy.

A weaker dollar benefits dollar-priced commodities by making them more affordable for buyers paying with other currencies.

MANUFACTURING: U.S data showed an unexpected dip in industrial production last month, but analysts said focus was on next week's round of data.

"Industrial production data out of the U.S. was slightly disappointing but it didn't spill over into the copper markets," Danske Bank analyst Jens Pedersen said.

"The market will look into next week, where we get the next round of manufacturing PMIs, which will be an important gauge for the market to assess how global industrial activity is doing."

ZINC STOCKS: Zinc stocks <MZN-STOCKS> saw an outflow of 2,700 tonnes to 151,650 tonnes, bringing inventories to their lowest since 2008.

PROCESSING FEES: Global zinc miners and smelters failed to reach any benchmark deal on 2018 processing terms at an industry gathering this week, and any agreement is likely to be delayed by a month or more as participants haggle over prospects for growing supply in the second half, two industry sources said.

ZINC PRICES: LME zinc gained 0.2 percent to $3,578 a tonne, heading for its biggest weekly rise since August 2017.

PRICES: Aluminium rose 0.7 percent to $2,180, lead added 0.5 percent to $2,630, tin rose 0.5 percent to $21,685 and nickel fell 1 percent to $14,005.

(Additional reporting by Melanie Burton; Editing by Dale Hudson)