* Weak seasonal steel demand in China
* Dalian iron ore drops as much as 2.3 pct
* Spot iron ore back to levels before last week's rally
By Manolo Serapio Jr
MANILA, March 16 (Reuters) - Dalian iron ore futures fell to a one-week low on Wednesday, pressured by slow steel demand in top market China that is likely to fuel more bearish bets on the steelmaking raw material.
Spot iron ore prices are back to levels before last week's record surge that many traders blamed on speculative buying, given the market's still weak demand-supply fundamentals.
The most-traded May iron ore contract on the Dalian Commodity Exchange DCIOcv1 was down 1.3 percent at 414 yuan ($63.51) a tonne by 0259 GMT after falling as far as 410 yuan earlier.
On the Shanghai Futures Exchange, rebar, a construction steel product, SRBcv1 was up 0.7 percent at 1,997 yuan a tonne, but below last week's eight-month peak of 2,138 yuan.
"Now that everybody's calmed down, we see there's no major improvement on the physical demand side for steel," said a Shanghai-based iron ore trader.
While Chinese steel demand is better now than in the past two months as warmer weather spurs more construction activity, "it's not enough to keep steel prices high," he said.
Some traders are keen on selling iron ore cargoes at below market levels as bids drop, he said.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI slumped 6.9 percent to $51.70 a tonne on Tuesday, according to The Steel Index (TSI). It was its steepest drop since July 2015.
It brought the spot benchmark's losses to 18.3 percent for the past five sessions, that came shortly after it soared by a record 19.5 percent on March 7.
Commonwealth Bank of Australia believes iron ore will fall back to $40 per tonne.
"We continue to see surplus risks in iron ore markets, driven by slowing demand in China and expanding supply in seaborne markets as new projects ramp up," the bank said in a note.
Rebar and iron ore prices at 0259 GMT
Contract
Last
Change Pct Change SHFE REBAR OCT6
1997
+14.00
+0.71 DALIAN IRON ORE DCE DCIO MAY6
414
-5.50
-1.31 SGX IRON ORE FUTURES MAY
48.55
+1.25
+2.64 THE STEEL INDEX 62 PCT INDEX
51.7
-3.80
-6.85 METAL BULLETIN INDEX
52.88
-2.67
-4.81
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.5185 Chinese yuan)