* Steel rebar futures falls to lowest in 2 months
* Iron ore futures fall to lowest in 3 month
* Weak China steel outlook behind rout
* Drags coking coal, coke future down
By James Regan
SYDNEY, April 12 (Reuters) - Chinese steel and iron ore futures tumbled on Wednesday to the lowest prices in months as market sentiment turned bearish on the demand outlook.
China's producer price inflation cooled for the first time in seven months in March, pressured by fears that Chinese steel production is higher than demand, leaving a glut of the metal later this year.
"We're not seeing much interest on the buy side, everyone is nervous that the bottom is falling out," said a commodities trader in Perth, Australia, who closely monitors activity on China's Dalian and Shanghai Futures Exchanges for overseas clients.
The most active rebar contract on the Shanghai Futures Exchange SRBcv1 settled 3.5 percent down at 2,893 yuan ($420), the lowest since Feb. 2.
The sharp decline in steel futures has tamed buying interest in the physical market as well.
Iron ore .IO62-CNO=MB for delivery to China's Qingdao port has swung into a bear market, with the price sinking more than 20 percent from its 2017 high in February to $74.38 a tonne, according to Metal Bulletin.
Iron ore on the Dalian Commodity Exchange DCIOcv1 settled 3.3 percent lower at 506 yuan, the lowest price since Jan. 10.
China's steel sector has been under particular scrutiny by its major trading partners, with the Trump administration saying Beijing's support for such industries has led to over-production and a flood of exports that have distorted global markets.
China's producer price index (PPI) rose 7.6 percent in March from a year earlier, still elevated but in line with expectations and easing from 7.8 percent in February, a 9-year high, the National Bureau of Statistics said on Wednesday.{nL3N1H63D5]
Dalian coking coal DJMcv1 was also swept up in the sell off, sliding 6.7 percent to 1,154.50 yuan a tonne, the weakest since Feb. 10 while coke DCJcv1 - made from coking coal - tumbled nearly 7 percent to a one-month low of 1,633.50 yuan,
($1 = 6.8949 Chinese yuan renminbi)