METALS-Nickel, zinc hit week lows as China returns, steel slumps

(Adds more analyst comment, updates prices, changes dateline from MELBOURNE)

LONDON, Feb 22 (Reuters) - Nickel and zinc hit their lowest levels in over a week on Thursday as Chinese investors sold metals as their markets opened after holidays, the dollar strengthened and steel prices dropped.

Trading on the Shanghai Futures Exchange (ShFE) resumed on Thursday after a week-long break for the Lunar New Year.

"It's a flurry of sales after the markets reopened. Probably traders, merchants and some arb players are behind this move, looking to capture some profit before buying interest returns," said Robin Bhar, head of metals research at Societe Generale in London.

"I wouldn't have thought this would last too long given we're moving into the peak season of demand, which runs from March to June."

The move lower was across the board on the London Metal Exchange, but nickel and zinc were the hardest hit after Chinese steel futures dropped nearly 2 percent, at one point touching their weakest level in five weeks.

Nickel is mainly used in stainless steel while zinc is largely used for galvanising steel.

* DOLLAR: Weighing on the LME complex was a stronger dollar, which climbed to a 10-day high against a basket of major currencies after minutes of the Federal Reserve's January meeting showed policymakers were more confident of the need to keep raising interest rates.

* NICKEL: LME benchmark nickel was the biggest decliner on the LME, falling 2.2 percent to $13,535 a tonne by 1105 GMT, after touching $13,390, the weakest since Feb. 13

* ZINC: LME zinc shed 1.7 percent to $3,479.50 a tonne after hitting $3,437, the lowest since Feb. 13.

COPPER: LME three-month copper fell 0.8 percent to $7,065 a tonne, having ended the previous session up 0.4 percent. Support is seen at the 30-day moving average of $6,826 a tonne.

* COPPER SUPPLY: Southern Copper Corp will invest about $2.5 billion in Peruvian copper project Michiquillay, with production of 225,000 tonnes of copper per year expected to start in 2025, the company said on Wednesday.

* ALUMINIUM: LME aluminium declined 1 percent to $2,179.50 a tonne. Chinese aluminium inventory, including ShFE levels and off-exchange stocks, has climbed to 1.96 million tonnes, up from 1.82 million before the Chinese holidays, according to news website SMM.

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(Reporting by Eric Onstad, editing by David Evans)