* Spot iron ore down 4.6 pct so far this week
* But Dalian ore futures extend gains in line with rebar (Adds BHP, updates futures prices)
By Manolo Serapio Jr
MANILA, Jan 15 (Reuters) - Spot iron ore is heading for its second weekly decline, trading near its lowest level since at least 2008, amid expectations slow steel demand in top consumer China may lead to more production cutbacks, paring demand for the raw material.
A recovery in Chinese steel futures on Friday from a 2-1/2-week low, which helped boost Dalian iron ore futures, is seen as fleeting.
"We expect construction and infrastructure demand to remain weak during winter, ahead of the Chinese New Year," said Wang Di, analyst at CRU Group in Beijing, referring to the week-long holiday in early February.
Citigroup (N:C) expects Chinese steel demand to contract again this year.
"Despite the rally in steel prices, Chinese steel margins are not particularly strong and numerous mills continue to lose money," the bank said in a report on Thursday.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI gained 0.8 percent to $39.60 a tonne on Thursday, according to The Steel Index (TSI).
Despite Thursday's rise, the spot benchmark is down 4.6 percent for the week after earlier losses that pulled it back below $40 a tonne. It touched $37 on Dec. 11, the lowest price recorded by TSI since it began assessing prices in 2008.
The rebound in iron ore prices on Thursday was sentiment driven, said ANZ.
"However, the overcapacity in the steel market and current low prices is triggering a series of corporate credit downgrades. As such, prices are likely to remain under pressure in the near term," the investment bank said in a note.
But gains in ferrous futures may help spot iron ore prices recover further on Friday and cut losses for the week. The most-traded May iron ore on the Dalian Commodity Exchange DCIOcv1 closed up 1.7 percent at 306.50 yuan ($46.53) a tonne, off a session high of 311 yuan.
On the Shanghai Futures Exchange, construction steel product rebar SRBcv1 rose almost 2 percent to end at 1,778 yuan per tonne.
"There has been no significant change in buying activities which just (signals) some downside risk to iron ore prices," said CRU's Wang.
Sliding prices have hurt iron ore miners big and small and No. 3 producer BHP Billiton BHP.AX BLT.L also took a hit from weaker energy prices.
BHP said it will write down the value its U.S. shale assets by $7.2 billion on a bleak outlook for oil and gas prices, cementing expectations it will be forced to cut its dividend for the first time in over 25 years. and iron ore prices at 0709 GMT
Contract
Last
Change Pct Change SHFE REBAR MAY6
1778
+33.00
+1.89 DALIAN IRON ORE DCE DCIO MAY6
306.5
+5.00
+1.66 SGX IRON ORE FUTURES FEB
38.99
+0.26
+0.67 THE STEEL INDEX 62 PCT INDEX
39.6
+0.30
+0.76 METAL BULLETIN INDEX
40.22
+0.71
+1.80
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.5868 Chinese yuan)