* Copper up on Friday after recording worst day since Aug. 1

* Nickel rises after hitting lowest since July 2022 on Thursday

* Dollar set for 10th weekly rise

LONDON, Sept 22 (Reuters) - Copper prices were on track for a weekly loss on Friday due to a strong dollar, high inventories and reduced risk appetite after the U.S. Federal Reserve signalled policy would remain restrictive for longer.

Three-month copper on the London Metal Exchange (LME) was up 1.0% at $8,272 per metric ton by 1028 GMT. Its fall by 1.8% on Thursday was the deepest daily decline since Aug 1.

"Prices of base metals dipped too much yesterday, it is reversing now as investors are buying on the dip," said Nitesh Shah, commodity strategist at WisdomTree.

The U.S. dollar currency index was on track for its 10th consecutive weekly increase in the wake of the Fed decision, making dollar-priced metals less attractive to holders of other currencies.

Adding to the pressure on prices for copper, used in power and construction, inventories in LME-registered warehouses remained at their highest level since May 2022, and data by the ICSG showed that the copper market was in surplus in January-July.

The discount for near-term delivery versus the LME three-month copper contract was at a four-month high, indicating plentiful immediate supply.

In the longer term, the copper market should find support from demand from the green energy transition and economic stimulus in China, the world's top metals consumer, Shah said.

Copper inventories in warehouses monitored by the Shanghai Futures Exchange fell 16.9% this week, according to the exchange.

Meanwhile, LME aluminium rose 1.2% to $2,238. LME's on-warrant stocks fell to a one-month low after new cancellations in three different locations, including South Korea's Gwangyang port, daily data showed. <0#MALSTX-LOC-GRD>

LME nickel gained 1.2% to $19,360 a ton. The metal hit $19,100, its lowest since July 2022, on Thursday as data by INSG showed that the global nickel market surplus had widened in July.

Zinc was 1.8% higher at $2,558.5, lead firmed 1.0% to $2,205 and tin added 0.1% to $25,635.

(Reporting by Polina Devitt and Julian Luk in London; additional reporting by Swati Verma in Bengaluru; editing by Jane Merriman)