Iron Ore-China rebar hits 1-1/2 week top; iron ore restocking eyed

* Iron ore prices on track for biggest monthly drop since
Oct
* Steel mills may return to market for restocking
* Buying expected to be limited to small volumes

(Recasts, updates Shanghai rebar price)
By Ruby Lian and Fayen Wong
SHANGHAI, July 30 (Reuters) - China rebar futures hit their
highest in more than a week on Monday, after dropping for the
previous three weeks, while iron ore prices will find support as
steelmakers stock up on the key raw material following its 2-1/2
year low struck last week.
But persistent worries about the health of the global
economy, battered by a debt crisis in the euro zone and
stuttering growth in the world's largest economy, the United
States, will limit price gains, industry participants said.
The most active rebar contract for January on the Shanghai
Futures Exchange surged 3,776 yuan ($590) per tonne,
its highest since July 20, before paring gains to trade almost
flat at 3,757 yuan. Rebar prices had shed about 7 percent over
the three weeks to July 27.
Benchmark iron ore with 62 percent iron content
.IO62-CNI=SI hit $116.20 per tonne on Friday, its thirteenth
consecutive decline and its lowest level since Dec. 29, 2009,
according to the Steel Index.
"Steel mills may need to replenish some iron ore stocks
after they saw prices have slid too much over the past few
weeks, and they are also running very low on stocks," said an
iron ore trader in Shanghai.
Iron ore prices slid 7 percent last week and are on track
for a drop of 13 percent this month, in the biggest monthly drop
since October.
"Spot prices are currently cheaper than the stocks that
steel mills have on hand. If the decline persists, it would
encourage steel mills to restock more," a trader in Beijing
said.
But a sharp upturn in iron ore prices is not expected
anytime soon. Traders said fears about the global economy and
fragile growth in China meant iron ore prices were likely to
stay rangebound in the near-term.
With tepid demand worldwide and strong production from
Australia and Brazil, some industry experts warn that the
downtrend for iron ore prices remains intact and prices could
touch $110 a tonne if demand does not pick up fast enough.
Sharply falling prices and swelling inventories have forced
some small traders to sell their stocks at a loss, abandoning
hopes for a strong rebound in demand for iron ore and steel in
the latter half of this year, given the bearish outlook for the
global economy.
"Prices will probably not fall as sharply as they did in the
past month, but they may continue to decline since the overall
macro environment remains unstable," the Shanghai-based trader
said.

Shanghai rebar futures and iron ore indexes at 0712 GMT

Contract Last Change Pct Change
SHANGHAI REBAR* 3757 -5.00 -0.13
PLATTS 62 PCT INDEX 118 -1.00 -0.84
THE STEEL INDEX 62 PCT INDEX 116.2 -1.10 -0.94
METAL BULLETIN INDEX 117.43 -1.21 -1.02

*In yuan/tonne
#Index in dollars/tonne, show close for the previous trading day
($1 = 6.3807 Chinese yuan)

(Editing by Himani Sarkar)