* Iron ore reverses gains on falling steel prices
* Prices drop as steel mills accelerate production (Adds background, update prices)
SHANGHAI, March 14 (Reuters) - Chinese iron ore futures dropped more than 2 percent after touching a 14-month high, dragged down by a steep decline in steel prices due to a chronic supply glut and weak spot prices.
The May contract, most active iron ore future on the Dalian Commodity Exchange DCIOcv1 , closed 2.3 percent lower at 422.5 yuan ($65.06) a tonne. It earlier surged as much as 5 percent to an intra-day high of 454 yuan a tonne, its highest since Jan. 16, 2015.
Chinese steel mills have raised their output since the Lunar New Year holiday that ended in the middle of February to meet expected peak demand in April and May, traders and analysts have said.
There are increasing concerns that finished steel output is outpacing the modest rise in demand amid signs of a slowing Chinese economy. Steel prices are softening as a result.
"Spot steel prices are falling as demand is picking up very mildly, not enough to support the previous rally that was driven by the expectation on demand recovery, which hurt rebar and iron ore futures," said a Shanghai-based trader.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI dropped 2.3 percent to $56.10 a tonne last Friday, according to the Steel Index. However, it rose 31 percent since the beginning of this year, making it the best performing commodity so far in 2016.
On the Shanghai Futures Exchange, the most-traded rebar futures SRBcv1 slumped 3.3 percent to 1,986 yuan a tonne by close.
Rebar and iron ore prices at 0704 GMT Contract
Last Change
Pct Change SHFE REBAR OCT6
1986 -67.00
-3.26 DALIAN IRON ORE DCE DCIO MAY6
422.5 -10.00
-2.31 THE STEEL INDEX 62 PCT INDEX
56.1
-1.30
-2.26 METAL BULLETIN INDEX
57.09
-0.83
-1.43 Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.4930 Chinese yuan)