* Iron ore futures in China hit fresh 3-month high
* Shanghai rebar slips after big gains on tighter supply
By Manolo Serapio Jr
MANILA, July 29 (Reuters) - Iron ore scaled a 12-week high near $60 a tonne and is set to end July with a second monthly gain on the back of a stronger Chinese steel market that benefitted from tighter supply.
The spike in the spot price of the steelmaking raw material was largely driven by big gains in China's ferrous futures this week, defying market expectations that iron ore would be dragged down by increased supply in the second half of the year. ore prices have advanced as higher steel prices have encouraged stronger steel output and iron ore consumption," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
Floods in northern China have disrupted steel transport routes, while Tangshan, a major steel producing region, continues to curb steel production on environmental grounds, pushing up steel prices, said Dhar.
Chinese authorities are also conducting environmental inspections on steel mills across eight provinces that have led to closures of some facilities, traders and analysts say.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI jumped 2.1 percent to $59.20 a tonne on Thursday, according to the latest available data compiled by The Steel Index (TSI).
That was the highest level since May 5 and brought the commodity's July gain so far to 9.2 percent, nearly matching June's rise.
"The seaborne iron ore market remained tight, with sellers reluctant to let go of cargo in anticipation of further gains, and buyers also taking a wait-and-see approach," TSI said.
The price increase followed sharp gains in Chinese iron ore futures, which touched a fresh three-month peak on Friday.
The most-traded September iron ore contract on the Dalian Commodity Exchange DCIOcv1 hit 477 yuan a tonne, its strongest since April 25, before cutting gains to trade flat at 469 yuan by 0207 GMT.
"The mills are enjoying higher profit from steel products at the moment and some are increasing their production rate. Some are even considering using (higher quality) iron ore pellets to improve output," said a Shanghai-based trader.
On the Shanghai Futures Exchange, construction steel product rebar SRBcv1 was off 0.5 percent at 2,451 yuan a tonne, having touched a 1-1/2-week high of 2,503 yuan on Thursday.