* Spot iron ore has gained almost 7 pct this week
* Dalian iron ore futures rise to fresh 26-month high
* Appetite for high-grade ore spurred by strong coal prices
* Coking coal, coke resume rally (Updates prices)
By Manolo Serapio Jr
MANILA, Oct 28 (Reuters) - Spot iron ore was on course for its biggest weekly gain in six months amid firm demand for high-grade cargo, with Chinese futures extending a rally to their strongest level in more than two years on Friday.
The rapid increase in price is spurring caution among Chinese mills. While buyers sought high-grade iron ore this week so they can use less coal amid surging prices of the fuel, steel prices have lagged the gains in the raw material.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI stood at $62.30 a tonne on Thursday, a day after scaling a six-month peak, according to The Steel Index.
For the week, the spot benchmark has risen nearly 7 percent, the most since the week ended April 22.
The strength in iron ore futures helped push up trades on physical iron ore cargoes this week. On Friday, the most-traded iron ore on the Dalian Commodity Exchange DCIOcv1 closed up 3.8 percent at 494 yuan. Earlier in the session, it rose as far as 497.50 yuan ($73) a tonne, its loftiest since August 2014.
But physical trades slowed down on Thursday after brisk sales in the early part of the week.
"From the traders' side they just want to insist on the prices while steelmakers are becoming cautious," said Wang Di, analyst at CRU consultancy in Beijing.
Steel futures have made smaller gains compared with iron ore. The most-active rebar on the Shanghai Futures Exchange SRBcv1 peaked at 2,597 yuan per tonne this week, the highest since Aug. 25. On Friday, the contract rose 2.4 percent to finish higher at 2,588 yuan.
"I don't think iron ore prices will go crazy (high). The high-grade became extremely tight this week, but if you look at overall iron ore supply, it's still sufficient," said Wang.
The appetite for high-grade iron ore was spurred by the recent strong rally in prices of coking coal and coke, which resumed their uptrend on Friday.
Coking coal DJMcv1 closed 4.1 percent higher at 1,307.50 yuan a tonne after sliding 3.5 percent in the previous session, while coke DCJcv1 climbed 4.5 percent to 1,757.50 yuan after dropping 1.9 percent on Thursday.
Coking coal touched a contract high of 1,332 yuan and coke hit a three-year high of 1,765 yuan earlier this week. ($1 = 6.7796 Chinese yuan)