* Steel, iron ore futures rise after falling 3 days this week
* Big rebound sparked by jump in spot prices, technical recover
SHANGHAI, July 21 (Reuters) - Chinese steel futures rose more than 3 percent on Thursday after three straight days of losses, lifted by a spike in spot prices and supported by a technical correction.
Spot prices of some steel products in a key producing region of Tangshan in northern China rose by 80 yuan ($11.98) a tonne in late morning, traders said, lifting the futures markets.
October prices for benchmark construction material rebar on the Shanghai Futures Exchange SRBcv1 surged 3.1 percent to 2,377 yuan a tonne by the midday break. The October contract had lost more than 8 percent over the first three days of this week on profit-taking after hitting a 2-1/2-month high on July 13.
"Steel products inventories started to edge up by in late July, but they remain much lower from a year ago, and the government's campaign for overcapacity cuts is working," said a fund researcher in Beijing.
Open interest in the steel futures - contracts held by investors - rose about 5 percent by the midday break from the previous day as traders are buying the contract again.
Steel product inventories owned by big mills rose 4.3 percent to 13.80 million tonnes by July 10, the latest data from the China Iron & Steel Association showed.
Steel output in the world's top producer is expected to slow in July but remain at a high level, after the average daily rate hit a record in June.
Some analysts warned the rebound, driven in part by a technical correction after the previous slump, will be curbed as China's slower property market will keep weighing on demand in the world's top consumer.
"It's a technical recovery after the previous slump, and I don't see big upward momentum in the short term as demand slows, hit by the rainy season, a weaker property market and fading stimulus hopes," said Tian Xinyuan, an analyst with Founder CIFCO Futures in Beijing.
Iron ore futures on the Dalian Commodity Exchange DCIOcv1 rose 2.7 percent to 434.5 yuan a tonne by midday.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI steadied at $55.10 a tonne on Wednesday, the lowest since July 1, according to The Steel Index. ($1 = 6.6760 Chinese yuan)