* China daily steel output slips in July from record June
* Spot iron ore back below $60/tonne (Updates prices)
By Manolo Serapio Jr
MANILA, Aug 12 (Reuters) - Shanghai steel futures extended recent gains to trade near a 3-1/2-month high on Friday, supported by expectations that supply in top producer China may tighten as authorities step up efforts to address oversupply.
China's average daily crude steel output dropped to 2.15 million tonnes in July from a record high of 2.32 million tonnes in June, according to Reuters calculations based on data released by China's National Bureau of Statistics. has vowed to reduce its steel capacity by 45 million tonnes this year and had reached only 47 percent of its target by end of July. participants are all expecting the government to take stronger measures to close capacity for the rest of the year," said Richard Lu, analyst, CRU Consultancy in Beijing.
These capacity cuts along with seasonal demand starting from September should continue to support steel prices, Lu added.
The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange SRBcv1 closed up 0.2 percent at 2,577 yuan a tonne, not far below Wednesday's peak of 2,639 yuan, its highest since April 26.
Some steel traders are also building inventories in anticipation of demand picking up after the G20 summit on Sept. 4-5 in China's eastern city of Hangzhou, said Lu.
The price of raw material iron ore cut intraday losses to finish flat. The most-active iron ore on the Dalian Commodity Exchange DCIOcv1 was off 0.1 percent at 432 yuan a tonne.
The stabilisation in futures could spill over to spot iron ore prices which fell back below $60 a tonne on Thursday.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI slid 1.8 percent to $59.60 per tonne, according to The Steel Index. The spot benchmark, down 2.1 percent so far this week, touched a three-month peak of $61.40 on Monday.
ANZ Bank analysts said a surge in cargoes hitting Chinese ports saw physical traders take a wait-and-see approach.
"However, with demand relatively strong, the dip should be short-lived," ANZ Bank said in a note.
($1 = 6.6410 Chinese yuan)