* Dalian iron ore down 6 pct on week, Shanghai rebar off 2 pct
* Spot iron ore up 9 pct on Thursday after falling 7 pct Wednesday
By Manolo Serapio Jr
MANILA, Dec 2 (Reuters) - Steel and iron ore futures in China erased sharp early gains to edge lower on Friday, highlighting the volatile trading that has pervaded these markets this year due to speculative investors looking for big and fast returns.
The volatile Chinese iron ore futures have led to wild swings in the physical market with spot benchmark prices surging nearly 9 percent on Thursday after sliding about 7 percent on Wednesday.
"Clearly the speculative activity on the futures market is having an impact on the physical market," said Daniel Hynes, commodity strategist at ANZ Bank.
"I think traders are struggling to get a sense of where things are sitting on a physical basis."
The most-traded iron ore on the Dalian Commodity Exchange DCIOcv1 was down 1 percent at 567.50 yuan ($82) a tonne by midday after rising as much as 5.1 percent early in the session.
The steelmaking raw material rose 5 percent on Thursday after sliding 8 percent in the previous two days and has lost about 6 percent for the week.
On the Shanghai Futures Exchange, rebar SRBcv1 was off 0.6 percent at 3,069 yuan per tonne, after climbing almost 5 percent earlier.
The construction steel product gained 4.8 percent on Thursday after losing nearly 7 percent on Tuesday and Wednesday and was down more than 2 percent for the week.
The volatility in China's iron ore futures soared to near a record last week, spelling risks for traders and steel mills, some of whom are losing faith in a market swayed by speculative Chinese money. it has continued this week despite sustained efforts by Chinese exchanges to raise trading charges. Hynes said the exchanges can only do so much in terms of limiting the wild swings.
"I do feel there's just a lot of money looking for a home," he said.
Iron ore for delivery to China's Qingdao port .IO62-CNO=MB surged 8.7 percent to $78.36 a tonne on Thursday, according to Metal Bulletin. For the week, the spot benchmark was down 1.6 percent.
($1 = 6.8838 Chinese yuan)