* Chinese monetary policies a concern

* Inventories continue to march higher

* U.S. December payrolls much weaker than expected

(Recasts, updates prices/adds details)

By Michael Taylor and Maytaal Angel

LONDON, Jan 8 (Reuters) - Copper was steady on Thursday as the dollar fell after a weaker-than-expected monthly U.S. jobs report dashed hopes for a brisk economic recovery.

Benchmark copper MCU3 on the London Metal Exchange traded at $7,533 a tonne from $7,535 at the close on Thursday, having hit a session high of $7,575.

"In the short term we've had the dollar drop since the announcement and markets reacted to the weaker dollar," said Sucden Financial analyst .

"Longer term the data is quite a worry, it may impact consumer confidence and further down the road, consumption."

U.S. employers unexpectedly cut 85,000 jobs in December, data showed, tempering optimism on the health of the labour market and raising concern over the sustainability of the economic recovery. [ID:nN07203048]

Economists in a Reuters survey forecast an unchanged reading in December.

The dollar fell sharply against the euro in response to the data, making dollar-priced metals cheaper for non-U.S. investors and giving metals like copper a brief boost. [USD/]

Elsewhere, metals were knocked by fears that China may tighten its monetary policies, after the central bank on Thursday unexpectedly raised interest rates on short-term debt. [ID:nTOE60503R] [ID:nBJC002454]

The rate move triggered a pullback in copper, which hit a fresh 16-month high at $7,796.00 before the news, adding to gains of over 6 percent in December.

Speculative investors were also selling base metals as the reweighting of the Dow Jones UBS and Goldman Sachs commodity indexes got underway, analysts said. [ID:nLDE5BE1I3]

"Today the reweighting of the indices begins," said Eugen Weinberg, an analyst at Commerzbank. "The problem is that industrial metals, especially zinc and copper, will lose massively. There will be out-flows from those two markets."