* Shanghai rebar steadies after hitting 3-1/2-month high
* Stronger mill margins spurring appetite for iron ore (Updates prices)
By Manolo Serapio Jr
MANILA, Aug 9 (Reuters) - Iron ore futures in China climbed to fresh two-year highs on Tuesday before curbing gains, tracking a similar move in steel prices after another spike to multi-month peaks amid firm demand.
Stronger margins among Chinese steel producers have boosted their appetite for raw material iron ore, lifting the spot price to above $61 a tonne, its strongest since May, on Monday.
The most-traded September iron ore on the Dalian Commodity Exchange DCIOcv1 closed up 0.9 percent at 501.50 yuan ($75) a tonne after rising as much as 2.8 percent to 511 yuan earlier, its highest since August 2014.
On the Shanghai Futures Exchange, rebar SRBcv1 , a construction steel product, ended 0.7 percent higher at 2,589 yuan per tonne after peaking at 2,628 yuan, its strongest since April 26.
"The increase largely reflects stronger iron ore demand as steel mill margins in China continue to remain robust," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
China's iron ore imports rose 2.7 percent from a year ago to 88.4 million tonnes in July, the second-highest monthly volume on record, customs data showed on Monday. increased purchases of iron ore underline the strength of China's steel output as producers respond to stronger prices at home and continue to ship sizable volumes overseas.
China's steel exports grew 5.9 percent from a year ago to 10.3 million tonnes last month, bringing January-July shipments to 67.4 million tonnes, up 8.5 percent. TRADE/CN
"Even though China's steel output likely peaked in June, iron ore requirements crept higher after domestic shipments were affected by heavy rains and flooding," Morgan Stanley (NYSE:MS) said in a report.
"While we expect imports to gradually ease post the weather events and amid the onset of the seasonal slowdown, we have been surprised by strong steel exports and the associated effect on iron ore demand."
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI rose 0.8 percent to $61.40 a tonne on Monday, its loftiest since May 3, according to The Steel Index. ($1 = 6.6615 Chinese yuan)