* Dalian iron ore climbs nearly 5 pct, hits upside limit
* Shanghai rebar hits highest level since August (Updates and adds details on price moves)
By Manolo Serapio Jr
MANILA, March 1 (Reuters) - Iron ore and steel futures in China rallied to multi-month highs on Tuesday, buoyed by expectations of firmer steel demand in the world's top consumer from this month.
Iron ore on Dalian exchange jumped nearly 5 percent to hit its upside limit at one stage, while Shanghai rebar rose as much as 3.7 percent.
Construction activity usually picks up from March along with the warmer spring weather, prompting Chinese steel producers to lift output and boosting demand for raw material iron ore.
The most-traded May iron ore on the Dalian Commodity Exchange DCIOcv1 rose as much as 4.95 percent to the exchange-set ceiling of 382 yuan ($58.41) a tonne, its strongest since Sept. 11, before closing up 3.7 percent at 377.50 yuan.
On the Shanghai Futures Exchange, construction-used rebar for May delivery SRBcv1 closed up 2.8 percent at 1,994 yuan per tonne after rising as far as 2,010 yuan, its loftiest since Aug. 24.
"Steel futures are rising on expectations for demand into the Chinese new year as construction companies stock up on the reactivation of new projects authorised by Beijing," analysts at SP Angel said in a note.
Daily crude steel output by key Chinese mills stood at 1.561 million tonnes in the first 10 days of February, up 3.7 percent from the previous 10 days, according to the China Iron and Steel Association.
Stockpiles of finished steel products held at these mills totaled 13.85 million tonnes, up 15.2 percent from the prior 10 days, based on the data released in mid-February.
Sharp gains in Chinese steel prices has fueled a recovery in iron ore prices in 2016 following a three-year decline. iron ore topped $50 a tonne last week for the first time since October, but has since slipped back below that level. Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI was off 0.2 percent at $48.90 a tonne on Monday, according to The Steel Index.
But the raw material still ended February up 17.8 percent, marking its largest monthly gain since December 2012.
Some junior Australian and other Western iron ore miners are hedging forward cargoes for the first time in months after prices surged to their highest since October, looking to cash in on a price rally many fear may not last. disruptions in January, iron ore shipments from top suppliers Australia and Brazil picked up last month, which should limit further gains in prices, Westpac Banking Corp said, citing its shipping data.
"We would expect to see further evidence of increased supply in March shipping data with freight rates remaining low, increased supply coming onstream in Australia and port disruptions being addressed in Brazil," the bank said in a note.
"This should continue to cap iron prices in the early $50s."
Rebar and iron ore prices at 0706 GMT
Contract
Last
Change Pct Change SHFE REBAR MAY
1994
+55.00
+2.84 DALIAN IRON ORE DCE DCIO MAY
377.5
+13.50
+3.71 SGX IRON ORE FUTURES MAY
46.1
+0.92
+2.04 THE STEEL INDEX 62 PCT INDEX
48.9
-0.10
-0.20 METAL BULLETIN INDEX
49.62
+1.33
+2.75
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.5399 Chinese yuan)