* China home prices rise at fastest pace in 2 years
* Dalian iron ore rallies 6 pct, Shanghai rebar highest since July
* Vale says licensing delays may curb output in Brazil (Updates prices)
By Manolo Serapio Jr
MANILA, March 18 (Reuters) - Iron ore futures in China jumped 6 percent on Friday after a rally in Shanghai steel prices to their highest since July renewed buying in the raw material, with a brisk increase in domestic home prices reviving hopes for the property sector.
China's home prices rose at their fastest clip in almost two years in February thanks to red-hot demand in big cities, data showed. But the risks of overheating in some places combined with weak growth in smaller cities threatens to put more stress on an already slowing economy. most-traded rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 rose as far as 2,149 yuan ($332) a tonne, its strongest since July 3, 2015. It closed up 3.5 percent at 2,118 yuan.
Construction activity in China typically increases in the second quarter amid warmer weather, encouraging steel mills to produce more. Analysts say stockpiles of steel traders have been falling gradually and that declines could gather steam later this month.
As steel prices spiked, so did iron ore. May iron ore on the Dalian Commodity Exchange DCIOcv1 closed up 5.5 percent at 449.50 yuan a tonne after rising as much as 6 percent to hit its upside limit of 451.50 yuan, a daily ceiling set by the bourse.
On the Singapore Exchange, May iron ore SZZFK6 rose 2.5 percent to $53.05 a tonne.
That could extend gains in spot iron ore which on Thursday climbed 5.5 percent to $55.40 a tonne .IO62-CNI=SI , according to price assessor The Steel Index.
"Some steel mills remain sceptical of the sustainability of current iron ore prices given the availability of spot iron ore cargoes at ports," Commonwealth Bank of Australia said in a note.
The revival in spot iron ore follows recent wild swings. It surged by a record 19.5 percent on March 7, only to surrender nearly all of that in succeeding sessions through Tuesday.
Those gains were also spurred by a rally in Chinese steel prices that was similarly stalled before resuming this week.
Top iron ore miner Vale SA VALE5.SA said on Thursday it could lose as much as 100 million tonnes of annual iron ore output in the Brazilian state of Minas Gerais over the next three years due to pending environmental licences.
The Brazilian producer, in an email sent to Reuters, said licences for 88 projects were still being analysed. If they were not approved, consequent shutdowns would halve Vale's output in the state. and iron ore prices at 0730 GMT
Contract
Last
Change Pct Change SHFE REBAR OCT6
2118
+71.00
+3.47 DALIAN IRON ORE DCE DCIO MAY6
449.5
+23.50
+5.52 SGX IRON ORE FUTURES MAY
53.05
+1.28
+2.47 THE STEEL INDEX 62 PCT INDEX
55.4
+2.90
+5.52 METAL BULLETIN INDEX
56.09
+2.52
+4.70
Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.4685 Chinese yuan)