* Spot iron ore gains nearly 5 pct on week, at highest since July
* Dalian futures hits highest since late June despite steady steel (Updates Dalian futures)
By Manolo Serapio Jr
MANILA, Sept 11 (Reuters) - Spot iron ore prices posted their biggest weekly gain in five as the raw material climbed to its highest since July, backed by rising futures in China and expectations of a seasonal pickup in steel demand there.
Chinese steel prices have been largely steady this week, but mills are expected to boost production hoping consumption would recover from this month as they do in past years when construction work resumes after the summer lull.
"Some mills need to replenish, we have received some inquiries from mills in south China who want some cargoes," said a Shanghai-based iron ore trader.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI climbed 2.8 percent to $58.50 a tonne on Thursday, data compiled by The Steel Index (TSI) showed.
That was the highest for the spot benchmark since July 1 and put its weekly gain to 4.8 percent after four weeks of modest movements.
TSI will not publish a price assessment on Friday because it's a public holiday in Singapore due to national elections.
Gains in Chinese futures also spurred higher deals in the physical market.
"If mills want to buy cargo now, availability of stocks at the ports is limited so they have to buy fresh seaborne cargo and many sellers are trying to push up the market," said the Shanghai trader.
The most-traded January iron ore contract on the Dalian Commodity Exchange DCIOcv1 closed up 0.7 percent at 407.50 yuan ($64) a tonne, after peaking at 417 yuan, its highest since June 29.
The sharp gains in Dalian futures this week showcase how Chinese hedge funds are moving into commodities after Beijing's steps to tame volatility in equity markets restricted trading activity in stock futures. ID:nL4N11F188
Analysts at ANZ Bank said rising prices of domestic iron ore in China have narrowed its gap with seaborne prices to $16 per tonne against a high of $35 in July, making imports "less attractive."
China's iron ore imports fell 14 percent in August from the previous month, customs data showed on Tuesday. ID:nL4N11D1B4
Rebar and iron ore prices at 0711 GMT
Contract
Last
Change Pct Change SHFE REBAR JAN6
1946
-7.00
-0.36 DALIAN IRON ORE DCE DCIO JAN6
407.5
+3.00
+0.74 SGX IRON ORE FUTURES OCT
55.54
-1.04
-1.84 THE STEEL INDEX 62 PCT INDEX
58.5
+1.60
+2.81 METAL BULLETIN INDEX
59.01
+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 = 6.3718 Chinese yuan)