* Dalian iron ore fell as much as 17 pct from a 33-month peak
* More mill closures in Hebei on anti-pollution measures -Argonaut (Recasts, updates prices)
By Manolo Serapio Jr
MANILA, Nov 17 (Reuters) - Iron ore futures in China rebounded to finish higher on Thursday after a 17 percent drop from this week's peak pulled investors back into the commodity where open contracts have fallen to the lowest level since May.
China's iron ore futures touched a 33-month high on Monday in a speculator-driven rally in commodities that forced Chinese exchanges to hike trading fees to tame prices. falling around 6 percent each on Tuesday and Wednesday, the most-traded iron ore for January delivery on the Dalian Commodity Exchange DCIOcv1 dropped another 4.7 percent intraday on Thursday to a low of 546 yuan ($80) a tonne. That marked a 17 percent drop from Monday's peak of 656.50 yuan, which was its strongest since February 2014.
By afternoon trading, the contract had trimmed losses and closed 0.7 percent higher at 577 yuan.
"Where market gets strong momentum in one direction or another you can get speculators joining in...," said Michael McCarthy, chief market strategist at CMC Markets.
As prices tanked, open interest, or open contracts, on Dalian iron ore futures slid to 1.2 million lots on Wednesday from 2.09 million lots on Nov. 7.
The losses in futures had pulled down spot iron ore prices, with the benchmark 62-percent grade for delivery to China's Qingdao port .IO62-CNO=MB slipping 0.4 percent to $72.42 a tonne on Wednesday, according to data from Metal Bulletin.
The spot benchmark touched a two-year high of $79.81 on Nov. 11.
Steel futures also recovered with iron ore amid expectations of tighter Chinese supply as Beijing pushes ahead with anti-pollution measures that had forced some mills to halt output.
Air quality in China's smog-hit northern regions, which include the capital Beijing, worsened in October despite overall improvements over the course of the year, the Ministry of Environmental Protection said on Monday. northern Hebei province, the country's top steel-producing province, will suspend production of steel, coke and cement for several days to combat pollution, said Argonaut Securities analyst Helen Lau.
"Looking ahead, in the near term, we expect China's steel market to remain tight due mainly to production suspension in response to worsening pollution," Lau said in a note.
Rebar, a construction steel product, closed up 0.9 percent at 2,814 yuan a tonne on the Shanghai Futures Exchange SRBcv1 , bouncing off a session low of 2,738 yuan.
($1 = 6.8700 Chinese yuan)