* Shanghai rebar climbs as much as 5.8 pct
* China traders' steel inventory drops 5 pct on week
* Iron ore futures in Dalian, Singapore also rise (Updates prices)
By Manolo Serapio Jr
MANILA, April 11 (Reuters) - Shanghai rebar steel futures rallied nearly 6 percent to their highest in 10 months on Monday as traders' supply continued to decline amid a recovery in seasonal demand in the world's top market, China.
Steel's gains lifted iron ore futures in China and Singapore, boding well for spot iron ore prices which posted their third weekly fall last week.
Steel inventory of Chinese traders stood at 10.4 million tonnes as of April 8, down 5 percent from the previous week and 28 percent lower versus the same period last year, said Helen Lau, an analyst with Argonaut Securities in Hong Kong.
"As the weather becomes warmer, steel demand in northern China has increased. However, steel supply remains tight as the pace of production resumption has been slow due to tight financial liquidity," Lau said.
Construction-used rebar on the Shanghai Futures Exchange SRBcv1 rose as far as 2,315 yuan ($358) a tonne, its strongest since June 12, 2015. It closed up 4.8 percent at 2,293 yuan.
The upcoming international horticultural exposition in Tangshan which has resulted in a temporary suspension of steel production in China's top steel producing province, Hebei, has also helped tighten supply, said Lau.
Tangshan city is scheduled to host the event from April 29 to Oct. 16 and there have been efforts to curb air pollution during the event.
"We expect steel prices to rise further on the back of improved market conditions," said Lau.
China needs to step up efforts to shut down poorly performing mills to cut the country's steel production capacity that now stands at 1.13 billion tonnes, Luo Tiejun, vice head of the raw materials department at the Ministry of Industry and Information Technology told an industry conference on Saturday. ore futures also advanced. The most-traded September iron ore on the Dalian Commodity Exchange DCIOcv1 closed up 3.3 percent at 388 yuan a tonne, after peaking at 394.5 yuan.
On the Singapore Exchange, the most-active June iron ore SZZFM6 also climbed 3.3 percent to $51 a tonne.
Firmer futures are likely to lift bids for physical iron ore cargoes and boost the spot benchmark, traders say. Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI slipped 0.9 percent to $53.30 a tonne on Friday, according to The Steel Index.
($1 = 6.4664 Chinese yuan)