LONDON - Copper prices edged higher on Thursday on optimism that U.S. interest rates have peaked, but the gains were capped by continued worries over lacklustre demand in China after more weak data.

Three-month copper on the London Metal Exchange (LME) was slightly firmer at $8,618 per metric ton in official open-outcry trading after a 0.7% decline on Wednesday.

The dollar index extended losses a day after the U.S. Federal Reserve delivered what some expect to be its last rate increase in the current tightening cycle.

A weaker dollar makes commodities priced in the U.S. currency less expensive for buyers using other currencies.

"The Fed left the door open for further rate increases, but a lot of people in the market are seeing this as more dovish than they were expecting," said WisdomTree commodity strategist Nitesh Shah.

"There's constrained optimism in metals. We're not breaking out to new highs or anything like that."

The advance was kept in check by more downbeat data from China, the world's biggest metals consumer, with policymakers yet to release more detail on stimulus measures to fulfil recent pledges.

China's industrial profits extended this year's double-digit declines in June as waning demand took a toll on profit margins.

"The call for more stimulus in China is getting louder and louder with every disappointing economic print," WisdomTree's Shah said.

The most-traded September copper contract on the Shanghai Futures Exchange fell 0.3% to 69,000 yuan ($9,666.98) per metric ton.

Demand for imported copper into China has been declining, implied by the Yangshan copper premium dropping to a more than two-month low of $34.50 a metric ton.

"It is currently in the off-season of consumption, and ... active replenishment is relatively limited," broker Huatai Futures said in a note.

In other metals, LME aluminium added 0.3% to $2,219 per metric ton, nickel edged up 0.2% to $21,640, zinc gained 0.5% to $2,485, lead climbed 0.9% to $2,172 and tin was up 1.5% at $29,440.

For the top stories in metals click ($1 = 7.1377 yuan)

(Reporting by Eric Onstad; Additional reporting by Mai Nguyen in Hanoi Editing by Kim Coghill and David Goodman )