* Prices hit 2-week high after unexpected Fed statement
* Builds on earlier gains
By Josephine Mason and Maytaal Angel
NEW YORK/LONDON, Sept 18 (Reuters) - Copper rallied almost 3 percent to two-week highs on Wednesday as the dollar sank after the U.S. Federal Reserve's surprise decision to delay reining in its $85 billion monthly stimulus program.
In the biggest one-day gain in over a month, prices in New York jumped after the Fed said it would wait for evidence of a more stable economy before adjusting the pace of its purchases.
That built on gains earlier in the session underpinned by Chinese buying.
The Fed statement was the "polar opposite" of what the financial markets had expected and renewed expectations of low interest rates for a longer period and pushed the dollar lower, said David Meger, director of metals trading at Vision Financial Markets.
Low borrowing rates have fueled investor appetite for commodities over the past four years.
The market had been widely expecting the Fed to reduce its $85 billion-per-month asset-buying scheme by at least $10 billion.
"There are still question marks about when it will start tapering, but Bernanke's dovish tone will keep the dollar under pressure and metals supported," Meger said.
Investors also bought the industrial metal used in plumbing and wiring in expectation that stimulus cash will continue to support the U.S. housing sector's tentative recovery.
The Fed also downgraded its forecasts for the U.S. economy. It now sees growth in a 2 percent to 2.3 percent range this year, down from 2.3 percent to 2.6 percent in its June estimates. The downgrade for next year was even sharper.
The most-active December contract on COMEX rose almost 3 percent to as high as $3.3205 per lb, its highest level since Sept. 3. U.S. equities surged, while the dollar and bonds fell.
At 3:44 p.m. EDT (1944 GMT), prices were at $3.318 per lb, up 2.95 percent. Earlier in the session, December had settled at $3.2785 per lb, up from $3.223.
Benchmark three-month copper on the London Metal Exchange closed at $7,184 a tonne from $7,060 at the close on Tuesday. It hit a 1-month low of $7,024 a tonne on Friday.
Copper is up around 7 percent from three-year lows hit in late June, underpinned by improving sentiment on global growth, especially in China, which accounts for 40 percent of global copper consumption.
But copper has failed to make headway above $7,420 a tonne, the top end of a recent band hit in mid-August.
"Base metals have been underperforming massively compared to other risk assets so it's not surprising to see them stabilise. Recent (Chinese) data for imports was again very robust and I wouldn't be surprised to see dealers coming to the market to buy copper," said Commerzbank analyst Eugen Weinberg.
A trader said gains in LME copper were also fueled by higher Shanghai Futures Exchange prices as shorts covered ahead of a long weekend. China's markets are closed on Thursday and Friday for a holiday.
OUTPUT OF CONCENTRATES
Stronger mine output of concentrates is encouraging Chinese copper smelters to look for an increase of up to 50 percent in annual term treatment and refining charges (TC/RCs) for 2014.
Aluminium traded up 0.39 percent in rings at $1,784 a tonne. Prices are down nearly 15 percent for the year as a whole as the market remains encumbered by a massive structural stock overhang.
Russia's United Company Rusal Plc expects more aluminium smelter closures in western Russia due to the falling price of the metal, Rusal First Deputy Chief Executive Vladislav Soloviev said on Wednesday.
Nickel closed at $13,930 a tonne from a last bid of $13,785 on Tuesday. Daily LME data showed stocks rose 2,136 tonnes to 218,448 tonnes, a record high.
Lead closed at $2,071 a tonne and zinc at $1,869 a tonne from $1,878. Tin, untraded at the close, was bid at $22,995 from $22,355 and aluminium, also untraded, was bid at $1,784.50 from $1,812.
Three month LME copper
Most active ShFE copper
Three month LME aluminium
Most active ShFE aluminium
Three month LME zinc
Most active ShFE zinc
Three month LME lead
Most active ShFE lead
Three month LME nickel
Three month LME tin