* Dalian iron ore jumps nearly 6 pct to hit upside limit
* Shanghai rebar marks highest since June 2015 (Updates prices)
By Manolo Serapio Jr
MANILA, March 21 (Reuters) - Dalian iron ore futures surged nearly 6 percent and Shanghai steel climbed to its highest in almost nine months on Monday, before cutting gains at the close, as a recovery in China's housing prices boosted hopes for demand for the two commodities.
That should spell more gains for spot iron ore, which has risen more than 30 percent to be this year's top performing commodity.
Data on Friday showed home prices in China climbed at their fastest pace in almost two years in February, with prices in smaller cities also marking their first increase since 2014. will boost sentiment among property developers, they will have more confidence in the property market so they will build more. That will support demand for steel and iron ore," said Helen Lau, analyst at Argonaut Securities in Hong Kong.
"The worry is the supply response to the rally, which will eventually cap price rises," said Lau.
The most-traded iron ore for September delivery on the Dalian Commodity Exchange DCIOcv1 surged as much as 5.9 percent to hit its exchange-set ceiling of 431 yuan ($67) a tonne, before curbing gains at the close to 422.50 yuan, up 3.8 percent.
The gains spilled over to iron ore futures on the Singapore Exchange, with the May contract SZZFK6 rising 2.2 percent to $54.55 a tonne.
On the Shanghai Futures Exchange, rebar - a construction steel product - SRBcv1 closed up 1.3 percent at 2,147 yuan a tonne, after rising as far as 2,210 yuan, its strongest since June 29.
While the sharp, double-digit increases in Chinese home prices last month were courtesy of the big cities such as top performers Shenzhen, Shanghai and Beijing, Commonwealth Bank of Australia said prices in tier 3 cities and below rose 0.1 percent, marking the first increase since April 2014.
"However, a property inventory overhang of two-to-five years in lower-tier cities will likely remain a problem for China's property sector and weigh on commodity demand," the bank said.
"With China still focusing on transitioning its economy towards consumption and services, we think construction demand will remain weak in 2016, but if home price growth returns to China's lower tier cities, we could see demand strengthen."
Big gains in ferrous futures should bolster bids for physical iron ore cargoes and lift the benchmark spot price, that stood at $56.30 a tonne on Friday, up 1.6 percent, according to The Steel Index.
The spot benchmark marked its eighth weekly gain out of nine. The price has risen more than 31 percent this year.
Rebar and iron ore prices at 0705 GMT
Contract
Last
Change Pct Change SHFE REBAR OCT6
2147
+28.00
+1.32 DALIAN IRON ORE DCE DCIO SEP6
422.5
+15.50
+3.81
SGX IRON ORE FUTURES MAY
54.55
+1.18
+2.21 THE STEEL INDEX 62 PCT INDEX
56.3
+0.90
+1.62 METAL BULLETIN INDEX
57.5
+1.41
+2.51
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.4849 Chinese yuan)