* Shanghai rebar hits 1-week top, gains come after big fall in May
* Spot iron ore near $52/tonne after biggest daily rise in 2 weeks (Adds China ministry comment, updates prices)
By Manolo Serapio Jr
MANILA, June 23 (Reuters) - Chinese iron ore futures rallied to a five-week peak on Thursday, riding on the strength of steel prices that traders thought were oversold as market participants anticipated the seasonal lull from June onwards.
Low steel inventory among traders also supported prices. That could keep production high among Chinese mills, ensuring demand for raw material iron ore.
"Steel got oversold in May because people pre-empted the (summer) lull," said a Shanghai-based trader.
"I think demand will be stable or weaken slightly in July, but from August onwards, I see demand going up."
Construction activity in China typically slows during the summer months from June through August, before picking up again as the weather cools.
The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 closed up 1.2 percent at 2,141 yuan ($325) a tonne, after hitting a one-week high of 2,161 yuan earlier.
After a five-month rally, the contract fell more than 20 percent in May, the most since its launch in 2009.
China's steel inventory has been declining for four consecutive weeks, standing at 8.97 million tonnes as of June 17, the lowest since end-January, Argonaut Securities said in a note.
Amid firmer steel prices, the most-active iron ore on the Dalian Commodity Exchange DCIOcv1 , closed 1.7 percent higher at 387.50 yuan a tonne. It touched 392 yuan earlier, a level last seen on May 18.
As iron ore prices regain lost ground, "a lot of people are preferring to buy from the port because it's cheaper", the Shanghai trader said.
Benchmark 62-percent grade iron ore delivered to China's Tianjin port .IO62-CNI=SI climbed 2 percent to a one-week high of $51.70 a tonne on Wednesday, according to The Steel Index, citing a pickup in physical activity.
That marked the biggest single-day rise for the spot benchmark since June 7.
In China, the Commerce Ministry said it was deeply concerned about protectionism in the U.S. steel sector and urged the United States to strictly abide by World Trade Organization rules. mills in China, the world's biggest producer and consumer of the metal, have raised production despite the government's efforts to cut overcapacity and boosted exports. This has escalated trade spats between China and other steel producing nations such as Japan, India and the United States.
($1 = 6.5780 Chinese yuan renminbi)