LONDON - Copper prices fell to the lowest in five weeks in London on Thursday as the U.S. Federal Reserve signalled policy would remain restrictive for longer, the dollar rose to a six-month high and data showed further growth in the metal inventories.

Three-month copper on the London Metal Exchange (LME) fell 2.1% to $8,169.5 per metric ton in official open-outcry trading after touching $8,123, its lowest since August 17. Copper, used in power and construction, is down 3.2% so far this week.

"Industrial metals trade sharply lower amid the outlook for higher-for-longer rates in the United States reducing the general risk appetite," said Ole Hansen, head of commodity strategy at Saxo Bank.

The Fed's benchmark overnight interest rate may still be lifted one more time this year, according to updated quarterly projections released by the U.S. central bank, and rates kept significantly tighter through 2024 than previously expected.

Making dollar-priced metals less attractive to holders of other currencies, the U.S. currency index rose to an over six-month high.

Copper's fall below the level around $8,235 also triggered technical selling, accelerating the decline, Hansen said.

Further souring the sentiment, copper inventories in LME-registered warehouses , which have been rising since mid-July, hit the highest level since May 2022.

They rose to 162,900 tons after deliveries of 7,200 tons to warehouses in three different locations - in Hamburg, Rotterdam and New Orleans, LME daily data showed.

The discount for near-term delivery versus the three-month copper contract rose, indicating plentiful immediate supply. It closed at $64 per ton on Wednesday, its four-month high, compared to $4.5 on Sept. 5.

LME aluminium declined 2.0% to $2,211 a ton in official activity, zinc decreased 2.1% to $2,502, lead shed 1.4% to $2,184, and tin lost 1.3% to $25,800.

Nickel dropped 2.0% to $19,200 after touching $19,195, its lowest since July, 2022.

(Reporting by Polina Devitt in London; additional reporting by Mai Nguyen in Hanoi; Editing by Shri Navaratnam and Shailesh Kuber)