* Shanghai rebar extends gains, touches two-week high
* Iron ore stocks at Chinese ports still highest since Dec 2014 (Updates prices)
By Manolo Serapio Jr
MANILA, Aug 1 (Reuters) - Chinese iron ore futures rose more than 4 percent to their highest in more than three months on Monday as the raw material rode on sustained strength in steel prices.
Tighter steel supply in China has helped prop up prices with floods in the northern part of the country disrupting transport routes and environmental inspections across some provinces forcing the closure of some facilities.
"It is difficult to believe, but Chinese steel output continues its strong run and prices have actually showed continued strength despite bearish forecasts and a persistent backwardation in futures," INTL FCStone said in a report.
"Some of the strength is due to short-term bottlenecks that have raised steel prices and iron ore along with it."
The most-traded iron ore on the Dalian Commodity Exchange DCIOcv1 rallied as much as 4.2 percent to hit 487.50 yuan ($74) a tonne, its strongest since April 25, before closing at 486.50 yuan, up 4 percent.
On the Shanghai Futures Exchange, construction-used rebar SRBcv1 closed up 2.1 percent at 2,495 yuan a tonne, after earlier touching a two-week high of 2,521 yuan.
The strength in steel prices helped iron ore overcome the drag from rising stockpiles of the commodity along China's ports.
Inventory of imported iron ore at China's ports remained high, standing at 106.05 million tonnes on Friday, the most since December 2014, according to data tracked by SteelHome consultancy. SH-TOT-IRONINV
The port inventory has risen 14 percent this year.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI eased 40 cents to $58.80 a tonne on Friday, a day after touching a 12-week high, according to data compiled by The Steel Index.
The spot benchmark has gained 37 percent this year, even as the price has come off the 2016 peak of $68.70 reached in April.
INTL FCStone said the $60 level remains the key level for "mid-major ore producers to restart idled production and that could mean that the (price) upside looks rather limited here."
($1 = 6.6363 Chinese yuan)