* Escondida, Grasberg outages offer support
* Escondida output may not resume for another two weeks
* Freeport may take Indonesia to arbitration on Grasberg
* FOMC minutes due to be released at 2 p.m. ET (1900 GMT) (Adds closing prices)
By Pratima Desai
LONDON, Feb 22 (Reuters) - Funds cut bets on higher copper prices on Wednesday, driving the metal lower ahead of minutes from the Federal Reserve’s last meeting, which could boost expectations of higher U.S. interest rates and a stronger dollar.
Benchmark copper on the London Metal Exchange, which hit a 21-month high above $6,200 a tonne this month, ended down 0.3 percent at $6,040.
A higher U.S. currency makes dollar-denominated metals such as copper more expensive for non-U.S. firms, potentially weakening demand, though nervousness about supplies from top producers Chile and Indonesia are expected to support prices.
A government-mediated meeting between BHP Billiton and striking workers at its Escondida mine in Chile failed on Monday.
Escondida has said it will not hire temporary staff to replace striking workers for at least 30 days into the stoppages.
“It’s all about the disruptions in Chile and Indonesia, but we don’t think it will have a lasting impact “ said Julius Baer analyst Carsten Menke. “The assumption is that the strike at Escondida will be contained duration wise.”
In Indonesia, Freeport-McMoRan has warned it could take the government to arbitration and seek damages over a dispute that has halted operations at Grasberg.
Along with the Philippines, Indonesia is also behind worries about supplies of nickel, which sent prices to a two-month high of $11,165 a tonne this week.
The Philippines has ordered the closure of 23 of the country’s 41 mines on environmental grounds.
Although the Indonesian government in January eased a three-year ban on nickel ore exports, analysts say the rules accompanying the relaxation on using local smelter capacity to process low-grade ore may stymie some firms.
“It’s creating a nickel ore deficit, not a refined metal deficit ... higher ore prices push up nickel pig-iron costs,” Goldman Sachs analyst Max Layton said.
“We’re bullish (on) nickel here, but there are risks; the Philippines could water down the moves to close mines.”
Nickel closed down 0.4 percent at $10,810.
Among other metals, aluminium fell 0.1 percent to $1,884.50, zinc slipped 0.3 percent to $2,865, lead gained 0.5 percent to $2,276 and tin lost 2.4 percent to $19,325 a tonne.
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
Most active ShFE nickel
Three month LME tin
Most active ShFE tin
Editing by David Goodman and David Evans