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UPDATE 1-Shanghai steel surges 6 pct to 1-yr high amid brisk demand

* Shanghai rebar hits upside limit

* Rebar stocks in China at lowest since January

* Dalian iron ore near highest level since November 2014

* Spot iron ore could rally again after Monday’s 4.2 pct jump (Adds SGX futures, Rio Tinto, updates prices)

By Manolo Serapio Jr

MANILA, April 19 (Reuters) - Shanghai steel futures surged 6 percent to their strongest level in over a year on Tuesday as brisk seasonal demand in top market China tightened inventory of construction steel products to the lowest since January.

A pickup in construction activity after China’s Lunar New Year in February has fuelled a rally in steel prices, encouraging mills to boost production.

In March, China’s crude steel output hit a record high of 70.65 million tonnes.

The surge in China’s steel prices comes as China and other major steel-producing countries failed to agree measures to tackle a global steel crisis as the sides argued over the causes of overcapacity, prompting U.S. criticism of Beijing’s approach and an angry response from Chinese officials.

The most-active rebar, a construction steel product, traded on the Shanghai Futures Exchange ended up 6 percent at the exchange-set ceiling of 2,494 yuan a tonne, a level last seen on March 30, 2015.

“There is a bit of restocking rally going on but ultimately those things only develop into a full-fledged pickup in production if there’s some underlying improvement on the demand side,” said Daniel Hynes, a commodity strategist at ANZ Bank.

“For us we don’t see that just yet which means that this pickup would be relatively short-lived.”

Stocks of rebar at 28 big Chinese cities stood at 4.65 million tonnes as of April 15 SH-TOT-RBARINV, the lowest since late January, according to data tracked by consultancy SteelHome.

“There’s certainly some level of seasonality coming into play at the moment,” said Hynes.

Gains in steel spurred iron ore prices higher. The most-traded September iron ore on the Dalian Commodity Exchange closed 3.8 percent higher at 433.50 yuan a tonne, after peaking at 435 yuan earlier. The contract touched 436 yuan on Monday, its highest since Nov. 3, 2014.

On the Singapore Exchange, June iron ore rose 1.8 percent to $57.20 a tonne.

Firmer futures could stretch gains in spot iron ore prices, with the benchmark .IO62-CNI=SI climbing 4.2 percent to $59.90 a tonne on Monday, according to The Steel Index. That matched last week's high before the price fell back following a retreat in steel prices.

Improved margins among Chinese steel mills have boosted their purchases of iron ore. But Hynes said there were ample stocks of the raw material.

“The inventories are a bit higher than on the steel side and that could limit further price gains,” said Hynes.

Stocks of imported iron ore at China's ports stood at 96.8 million tonnes as of April 15 SH-TOT-IRONINV, not far below a one-year high of 97.85 million tonnes the week before, based on SteelHome data.

Rio Tinto cut its 2017 production guidance from its Australian iron ore mines due to a delay in the rollout of its autonomous transport technology, based on driverless trains. ($1 = 6.4736 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)

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