* China housing price gains spreading to smaller cities
* Construction demand may strengthen if price rises hold - CBA
By Manolo Serapio Jr
MANILA, June 20 (Reuters) - Shanghai steel futures edged higher on Monday after weekend data showed increases in Chinese home prices appear to be spreading to smaller cities, but concerns over seasonally weak demand capped gains.
Average new home prices in 70 major Chinese cities climbed 6.9 percent last month from a year ago, accelerating from April's 6.2 percent rise, based on data from the National Statistics Bureau on Saturday.
The coastal city of Xiamen surpassed the top-tier cities and recorded the second highest price rise of 28 percent. Prices in second-tier cities Nanjing and Hefei also rose over 20 percent, more than the 19.5 percent seen in Beijing. inventories in lower tier cities "will likely remain a problem for China's property sector, not only weighing on commodity demand at some point, but boosting concerns that the recent price uptick is more speculative than fundamental," Commonwealth Bank of Australia said in a note.
But the bank said if the growth in home prices in lower tier cities continues later in the year, construction demand could strengthen.
The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 was up 0.4 percent at 2,062 yuan a tonne by 0254 GMT.
Rebar has come off a five-week high of 2,189 yuan reached on June 13, pressured by expectations of slower construction activity in China as summer approaches.
That has limited appetite for spot cargoes of raw material iron ore. Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI gained 1 percent to $50.70 a tonne on Friday, according to The Steel Index, after falling to a 1-1/2-week low earlier in the week.
The spot benchmark lost 2.7 percent last week, its third weekly fall in four.
"Recent economic data in China has quelled the positive sentiment in the sector, with mills refraining from restocking," ANZ Bank said in a note.
Growth in China's fixed-asset investment slipped below 10 percent for the first time since 2000 in January-May, putting this year's economic expansion target of 6.5-7 percent at risk unless the government pumps even more money into the economy.