LONDON, Feb 19 (Reuters) - Copper prices slipped on Monday after China's central bank held key policy rates on medium term loans steady and the market focused on the country's ailing property market, but falling inventories capped losses.

Trading for Wednesday settlement on the London Metal Exchange (LME) is likely to mean a volatile session, while volumes are expected to be muted due to a U.S. holiday.

Benchmark copper on the LME was down 0.7% at $8,427 per metric ton at 1048 GMT. Prices of the metal used in power and construction hit a two-week high of $8,499.50 on Friday as funds and traders cut bets on lower prices due to a break of key technical resistance levels.

"Chinese authorities remain apparently cautious in their approach to providing support," said Marex strategist Alastair Munro, adding that "China's real estate sector woes" would remain a focus for industrial metals.

With China's return from the Lunar New year holiday week, traders and analysts will be looking for clues to demand over the next couple of months, typically a seasonally strong period ahead of the construction season in the summer.

Short-term trading though will be impacted by the U.S. currency which when it rises makes dollar-priced metals more expensive for holders of other currencies.

Copper stocks in LME registered warehouses at 128,300 have dropped nearly 25% since late December and are at their lowest since September 2023.

Outflows have also helped narrow the discount for the cash over the three-month copper contract which hit a record high above $110 a ton earlier in February.

Elsewhere, the discount for the cash over the three-month zinc contract has widened to four-month highs due to recent large inflows into LME warehouses .

Three-month zinc was down 0.2% to $2,379 a ton.

In other metals, aluminium retreated 0.6% to $2,204, lead was down 1.2% to $2,039, tin fell 1.1% to $26,665 and nickel rose 0.2% to $16,385.

(Reporting by Pratima Desai; editing by Jason Neely)