UPDATE 2-China's Hebei Steel cuts key rebar price by 10 pct

* China's No. 2 steelmaker cuts rebar price by 10 pct

* Also makes sizeable cuts in hot-, cold-rolled steel prices

* Oversupply persists, weighs on China steel market

* Chinese spot coil prices drop after the price cut (Adds details; comments)

By Alfred Cang and Edmund Klamann

SHANGHAI, Sept 23 (Reuters) - China's Hebei Iron and Steel Group, the world's fourth-biggest steelmaker, cut the price of reinforcing bar used in building construction by 10 percent, industry consultancy Umetal said, as excess supply weighs on the market.

The price cut could further weaken the physical Chinese steel market, which has seen a fall of around 20 percent since early August, as steadily recovering demand lags a more rapid rise in supply, traders and analysts said.

"The market is watching moves from these big mills," said a Shanghai-based trader. "They boosted the prices two months ago for quick gains but have now pushed the price lower and lower due to big inventories."

Chinese steel prices gained a quarter in July and touched their peak so far this year in August, after Jiangsu Shagang Group, China's largest private-sector steelmaker and a leading reinforcing bar producer, hiked its sales prices. [ID:nSHA371607]

The prices, however, turned south afterwards, weighed by the country's surging steel production, which hit a monthly record of 52.33 million tonnes in August, and rising stockpiles.

Spot prices of hot-rolled coil in Shanghai's market were traded at 3,360 yuan a tonne on Wednesday, down 60 yuan, or nearly 2 percent, from Tuesday, after Hebei Iron and Steel officially announced the price cut, traders said.

Several small steel mills in China's top steel-producing province of Hebei have cut output due to lower steel prices but major steel mills have not followed suit, industry analysts and company officials have said, warning of further price declines.

Hebei Steel, China's second-biggest steel maker and a major supplier to the construction sector, cut its benchmark reinforcing steel bar price to 3,550 yuan ($520) a tonne from 3,950 yuan, which was in place from the start of September, Umetal said, citing a company sales notice issued on Wednesday.

Hebei Steel officials could not immediately be reached for comment, and an official in the board office of Tangshan Iron and Steel Co (000709.SZ), a listed unit of the company, declined to comment.

The price cut will go into effect from Wednesday, the consultancy quoted Hebei Steel as saying.

Hebei Steel was formed by a merger of the state-owned parents of Tangshan Iron and Steel, Handan Iron and Steel Co 600001.SS and ferroalloy producer Chengde Xinxin Vanadium and Titanium Co 600357.SS.

The steel mill, which lags only Baosteel, parent of Baoshan Iron and Steel (600019.SS), in steel production volume in China, also cut its price for hot-rolled coil by 400 yuan, or 10 percent, to 3,650 yuan a tonne.

It also reduced the price for cold-rolled coil used by the automotive and appliance sectors by 700 yuan, or 13 percent, to 4,650 yuan a tonne. ($1=6.826 yuan)