UPDATE 2-Shanghai rebar in steepest fall ever on data, outlook

* China manufacturing activity shrinks for 11th month
* Shanghai equities at lowest since 2009, other commods down
* Iron ore steadies after hitting one-month high

(Recasts, adds comments, details, updates prices)
By Ruby Lian and Manolo Serapio Jr
SHANGHAI/SINGAPORE, Sept 20 (Reuters) - Shanghai steel
futures fell more than 4 percent on Thursday in their biggest
single day drop ever, after data showing an 11th month of
contraction in China's manufacturing activity clouded the
outlook for steel demand in the world's top market.
Shanghai rebar tracked losses in equities, which
closed at their weakest since early 2009, with other commodities
dragged down by uncertainty whether China will join other
countries in providing more stimulus to spur its economy.
Without more stimulus, analysts say steel demand in the
world's biggest consumer is unlikely to pick up strongly,
keeping prices of raw material iron ore under pressure.
An index measuring manufacturing activity in China stood at
47.8 in September after hitting a nine-month low of 47.6 in
August, even though output dipped to its lowest level in 10
months, a survey by HSBC of factory managers showed.

The data did not calm concerns that China's steel sector may
struggle further before seeing a sustained recovery.
The most-traded rebar contract for January delivery fell to
a session low of 3,478 yuan ($550) per tonne, before closing at
3,483 yuan, down 4.3 percent.
It was the steepest daily fall for rebar since Shanghai
launched rebar futures in 2009.
Before Thursday's rout, rebar prices had recovered more than
13 percent from record lows hit this month, fuelled by hopes
that Beijing's approval of more than $150 billion in
infrastructure projects would revive steel demand.

"Steel demand hasn't improved at all. When prices started to
rise, some end-users, who kept their stockpiles at low levels,
did some restocking, but when traders tried to raise prices,
end-users became reluctant to buy," said Zhang Yikun, a futures
trader with Shanghai Chaos Investment Group.
The weakness in steel has translated into slower orders for
spot iron ore cargoes.
"Prices went up too high too fast, and replenishment
activity is easing," said a Hong Kong-based iron ore trader, who
hadn't seen any transactions in the physical market on Thursday
afternoon.
Benchmark iron ore with 62 percent iron content
.IO62-CNI=SI was little changed at $109.50 a tonne on
Wednesday, just off the previous day's one-month high of
$109.60, according to data provider Steel Index.
Slower demand from China, the world's biggest iron ore
importer, dragged down spot prices to $86.70 a tonne on Sept. 5,
the lowest since October 2009.
But the infrastructure approvals helped prices bounce back
above $100, although traders say the outlook remains shaky.
"Iron ore transactions have slowed down since yesterday. I
think prices may not fall before the end of September, but the
outlook is uncertain after the national holiday," said a
Shanghai-based trader.
Chinese markets will be shut for a week next month for the
National Day holiday.
Only a fresh round of government spending could turn China's
steel sector around, as well as cement and aluminium smelting,
said Mirae Asset Securities.
"When a new round of government spending starts, these
sectors are likely to see a rally. However, it will be difficult
to improve margins due to excessive supplies," Mirae Asset said
in a note.

Shanghai rebar futures and iron ore indexes at 0759 GMT

Contract Last Change Pct Change
SHFE REBAR JAN3 3483 -155.00 -4.26
PLATTS 62 PCT INDEX 114 +3.00 +2.70
THE STEEL INDEX 62 PCT INDEX 109.5 -0.10 -0.09
METAL BULLETIN INDEX 112.7 +2.53 +2.30

Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3093 Chinese yuan)

(Editing by)
(+86 21 61041775; Reuters Messaging:
carrie.ho.reuters.com@reuters.net)