* Shortage of coking coal, coke continues
* Higher raw material prices lift steel production costs
* Improving activity in manufacturing sector brightens outlook (Updates close prices)
SHANGHAI, Nov 1 (Reuters) - Chinese steel futures extended gains on Tuesday after the manufacturing sector expanded in October at its fastest pace in more than two years and as steelmaking raw material prices remained strong amid tight supply.
The official Purchasing Managers' Index (PMI) that gauges the activity in China's manufacturing sector stood at 51.2 in October, stronger than expectations and above the 50-point mark that separates growth from contraction on a monthly basis. PMI data suggested a stabilising economy and that steel demand from the manufacturing sector remains solid, while the stretched supply shortage of coal has kept increasing mills' production costs," said Zhao Chaoyue, an analyst with Merchant Futures in Shenzhen.
More expensive raw materials have prompted Jiangsu Shagang Group, China's top private steelmaker, to raise prices of some products by 100 yuan ($14.76) per tonne for early November. Rebar, used for construction, will rise to 2,700 yuan a tonne, traders said.
"The tightness in transportation capacity and coal supply may not be alleviated soon," Zhao added.
The most active rebar futures on the Shanghai Futures Exchange SRBcv1 closed up 1.2 percent at 2,613 yuan a tonne. They earlier touched their highest since Aug. 16 at 2,640 yuan.
Iron ore futures on the Dalian Commodity Exchange DCIOcv1 climbed 1.5 percent to 502 yuan a tonne after hitting their highest of 508 yuan since July 16, 2014.
Coke futures DCJcv1 advanced 1.4 percent to 1,783 yuan a tonne and coking coal DJMcv1 jumped 1.8 percent to 1,313 yuan per tonne, both having surged about 50 percent since the end of August.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI advanced 1.1 percent to $63.8 a tonne, the highest since the end of April, according to data from The Steel Index.
($1 = 6.7750 Chinese yuan renminbi)