China iron ore tracks rebar higher on firm steel demand outlook

* Shanghai rebar rises the most in two months

* Underlying steel demand in China remains healthy - Argonaut

MANILA, May 17 (Reuters) - Iron ore futures in China jumped nearly 4 percent on Wednesday, tracking gains in steel prices, with declining steel inventories indicating firm demand as Beijing sustains a campaign to curb excess supply.

The most-traded iron ore contract on the Dalian Commodity Exchange was up 3.9 percent at 474.50 yuan ($69) a tonne by 0209 GMT, recovering further from Monday’s four-month low.

Rebar on the Shanghai Futures Exchange rose 3 percent to 3,072 yuan per tonne, on track for its biggest single-day spike since mid-March.

Inventory of steel products held by Chinese traders has fallen 17 percent this year to 11.2 million tonnes as of May 12, said Argonaut Securities analyst Helen Lau.

“Therefore, the underlying real steel demand remains healthy,” Lau wrote in a note.

Along with China’s efforts to tackle a glut, analysts said demand was expected to improve, especially for long steel products for construction.

China said on Monday that 31.7 million tonnes of steel capacity have closed so far this year, 63 percent of the target for 2017. That would be on top of Beijing’s earlier pledge to shut all producers of low-quality steel products by the end of June as it fights pollution.

Still, China produced a record 72.78 million tonnes of crude steel in April.

Iron ore for delivery to China's Qingdao port .IO62-CNO=MB rose 0.6 percent to $61.17 a tonne on Tuesday, according to Metal Bulletin. ($1 = 6.8843 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Miral Fahmy)