* China Aug steel output rises 1.7 pct vs July, down yr/yr
* Dalian iron ore drops after touching 10-week high
* Chinese stocks drop again on economic concerns (Updates prices, adds fall in Chinese stocks)
By Manolo Serapio Jr
MANILA, Sept 14 (Reuters) - Shanghai steel futures dropped more than 1 percent on Monday on worries over lean seasonal demand, dragging down iron ore futures from 10-week highs.
China's stocks slid after data suggesting economic growth was running below the 2015 target level of about 7 percent heightened concerns about the health of the world's No. 2 economy. .SS
Chinese spot steel prices slipped over the weekend, traders said, indicating slack demand at a time when consumption of the building material typically picks up along with construction activity after the summer hiatus.
"I still believe there will be some increase in demand this month and October. I just don't know how strong demand will be and if it will be enough to support prices," said a trader in Shanghai.
The most-traded rebar for January delivery on the Shanghai Futures Exchange SRBcv1 closed down 1.4 percent at 1,929 yuan ($303) a tonne, just off the session low of 1,926 yuan.
Billet sold in China's key Tangshan area dropped 10 yuan to 1,750 yuan per tonne over the weekend, traders said.
China's crude steel output fell 3.5 percent from a year ago in August, but rose 1.7 percent from July to 66.94 million tonnes, government data showed on Sunday. ID:nENNF9B0S9
"(The) expansion in August means output rose elsewhere in China to offset closures in Hebei province," ANZ analysts said in a note.
Many steelmaking plants in China's top producing province were ordered shut to improve air quality in Beijing before a parade in early September to mark the 70th anniversary of the end of World War II.
Amid the weakness in steel, Chinese iron ore futures sagged.
The January iron ore contract on the Dalian Commodity Exchange DCIOcv1 fell 2.2 percent to close at 401.50 yuan a tonne, after rising as far as 417 yuan on Friday, its loftiest since June 29.
Traders had attributed the gains in prices of the steelmaking raw material to limited availability of spot cargoes in China as stocks at ports dropped.
Iron ore inventory at 44 Chinese ports stood at 80.05 million tonnes as of Sept. 11, the lowest since late June, data from consultancy SteelHome showed. SH-TOT-IRONINV
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 at 4.8 percent after four weeks of small movements.
TSI did not publish a price assessment on Friday due to a public holiday in Singapore.
Rebar and iron ore prices at 0705 GMT
Contract
Last
Change Pct Change SHFE REBAR JAN6
1929
-27.00
-1.38 DALIAN IRON ORE DCE DCIO JAN6
401.5
-9.00
-2.19 SGX IRON ORE FUTURES OCT
54.42
-1.14
-2.05 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 = 6.3687 Chinese yuan)