* Dalian iron ore falls as much as 5 pct to lowest since March 7
* Shanghai rebar drops nearly 3 percent at one point
By Manolo Serapio Jr
MANILA, March 29 (Reuters) - Iron ore futures in China slid 5 percent to a three-week low on Tuesday as a drop in Shanghai steel prices fueled further losses in the raw material, putting its big gains this year at risk.
A rally in Chinese steel prices on expectations of a pickup in seasonal demand fired up iron ore earlier this month, making the steelmaking ingredient this year's top performing commodity.
The correction in iron ore seems to be in sync with those in other industrial commodities, said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
"There is a view gathering that the rally we've seen in industrial exposed commodities is overdone and that a pullback is on the cards," he said.
The most-traded September iron ore on the Dalian Commodity Exchange DCIOcv1 was down 4.1 percent at 376.50 yuan ($58) a tonne by 0239 GMT, after falling as far as 372.50 yuan earlier, its lowest since March 7.
That could weaken bids for physical iron ore cargoes, traders say, and drag down the spot benchmark.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI slipped 0.5 percent to $55.20 a tonne on Monday, according to The Steel Index.
The spot price has fallen almost 13 percent from a nearly nine-month high of $63.30 reached on March 8, but still up about 29 percent for the year.
McCarthy believes the price is unlikely to return to below $40 a tonne, seeing key support at around the $50 level.
"In the iron ore market, there's a perception that there's been a shift (in sentiment) and in particular the very low inventory levels among Chinese steel producers brought about a lot more optimism," he said.
On the Shanghai Futures Exchange, construction-used rebar SRBcv1 was down 1.8 percent at 2,144 yuan a tonne, but off a session low of 2,126 yuan.
($1 = 6.5093 Chinese yuan)