* Other steelmaking commodities coking coal, coke also slide
* But outlook for steel prices firm amid China's capacity cuts
By Manolo Serapio Jr
MANILA, Aug 25 (Reuters) - Iron ore futures in China tumbled nearly 5 percent on Thursday, down from a two-year high in the previous session, as investors spurned higher risk commodity assets after the government took steps to manage liquidity in the country.
Worries that China may no longer be keen on easing monetary policy as it heads off signs of growing risks in its financial and banking system dampened sentiment toward commodities and equities, traders said.
China took aggressive steps on Wednesday including unveiling detailed rules to curb peer-to-peer lending and intervening in its money markets. government also urged banks to increase the length of time of their loans after concerns about short-term borrowing could be leading to asset bubbles. financial futures were affected by this," said a Shanghai-based trader.
The most-active January iron ore on the Dalian Commodity Exchange DCIOcv1 was down 4.8 percent at 433.50 yuan ($65) a tonne by midday. The contract touched 460.50 yuan on Wednesday, the highest since August 2014.
On the Shanghai Futures Exchange, construction-used rebar SRBcv1 also for January delivery slid 2.5 percent to 2,532 yuan per tonne. Other steelmaking futures also fell including coking coal DJMcv1 which lost 2.5 percent and coke DCJcv1 which dropped almost 4 percent.
Despite Thursday's retreat, the outlook for steel prices remains bright, with sentiment supported by China's sustained steps to tackle overcapacity, traders said.
The government has promised to cut steel capacity by 45 million tonnes this year and has achieved 47 percent of that target by end-July. government is taking real action to cut production capacity and this should continue to support steel prices," said the Shanghai trader.
With steel margins supported by firmer prices, there should be sustained appetite for raw material iron ore, particularly for imported cargoes as domestic production is limited, the trader said.
"Mills are also looking for high-grade material to boost their steel production," he added.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI has sustained above $61 a tonne in recent days, standing at $61.50 on Wednesday, nearly flat from Tuesday, according to The Steel Index.
The spot benchmark, which touched a 3-1/2-month high of $61.80 on Aug. 16, has gained more than 43 percent this year to be among the best performing commodities, outpacing oil.
($1 = 6.6562 Chinese yuan)