* Shanghai rebar jumps as much as 4 pct, Dalian ore 3.4 pct
* Morgan Stanley (NYSE:MS) sees iron ore pullback to $40/tonne
By Manolo Serapio Jr
MANILA, Aug 16 (Reuters) - Chinese steel futures rallied 4 percent to their highest since April on Tuesday, lifting raw material iron ore, as infrastructure-driven demand extended gains in steel prices.
"China's steel-intensive infra-programs have needed a higher-than-expected steel output rate from its industry, underpinning ore demand," Morgan Stanley analysts said in a report.
That is creating upside risk to Morgan Stanley's iron ore forecast of $40 a tonne for the second half of the year, the analysts say.
"Our short-term forecast still features a September/October seasonal pullback as China's steel demand and production rate abates ahead of winter, undermining ore demand/prices too," they said.
The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 climbed as high as 2,652 yuan ($400) a tonne, its strongest since April 25. By 0315 GMT, the contract was up 3.6 percent at 2,642 yuan.
Chinese traders have been building steel stockpiles for weeks now to feed demand and to replenish a decline in inventories to multi-year lows.
Stocks of rebar at 28 major Chinese cities rose 2.8 percent from the prior week to 3.6854 million tonnes as of Aug. 12, according to data tracked by SteelHome consultancy. SH-TOT-RBARINV
Rebar stockpiles dropped to 3.4235 million tonnes in mid-July, the lowest since at least December 2011.
On the Dalian Commodity Exchange, iron ore for delivery in January next year DCIOcv1 jumped 2.7 percent to 433 yuan per tonne.
Firmer futures should boost bids for physical iron ore cargoes to China, traders said, and strengthen the spot benchmark again.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI slipped 0.3 percent to $60 a tonne on Monday, according to The Steel Index. The spot index, up 40 percent this year, touched a three-month peak of $61.40 on Aug. 8.
($1 = 6.6352 Chinese yuan)