* Spot iron ore rallied nearly 5 pct to 3-wk high
* Iron ore demand from China mills rebounding strongly -ANZ
By Manolo Serapio Jr
MANILA, April 12 (Reuters) - Shanghai steel futures extended gains to touch a fresh 10-month high on Tuesday, backed by tighter supply as seasonal demand strengthens in top consumer China.
The rally in steel prices has been boosting margins among Chinese producers, pushing them to buy more raw material. Iron ore climbed nearly 5 percent to a three-week peak on Monday and could similarly stretch gains amid firmer ferrous futures.
"Iron ore demand from steel mills is rebounding strongly as profitability improves dramatically," analysts at ANZ Bank said in a note.
The most-traded October rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 touched a session-high of 2,328 yuan a tonne, its strongest since June 12, 2015. It was up 1.6 percent at 2,298 yuan by 0220 GMT, after gaining 4.8 percent on Monday.
Brisk construction activity through May is lifting demand for steel in China, helping mills recover from losses earlier in the year.
Major Chinese steel mills reported losses of 11.4 billion yuan for the first two months of the year, according to the China Iron and Steel Association. steel mills in China's Tangshan area are required to cut emissions by at least 50 percent on certain days during the Tangshan Horticultural Exposition, due to run from April 29 to Oct. 16. Mills have boosted output before the mandated output cuts and to take advantage of rising steel prices, lifting demand for iron ore, said Commonwealth Bank of Australia.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI jumped 4.9 percent to $55.90 a tonne on Monday, the highest since March 23, according to price assessor The Steel Index (TSI).
While iron ore market activity was relatively limited, bids for available cargoes rose due to firmer steel prices, TSI said, adding that prices for iron ore stocks at Chinese ports increased 15 yuan per tonne.
The spot benchmark has recovered 8 percent from a March 15 trough of $51.70 and could extend gains along with futures.
On the Dalian Commodity Exchange, the most-traded September iron ore DCIOcv1 rose 3.1 percent to 398.50 yuan a tonne.