* Dalian iron ore futures slip, Singapore futures steady
* Spot iron ore has fallen 16 pct from 2016 high (Updates prices)
By Manolo Serapio Jr
MANILA, March 31 (Reuters) - Iron ore futures in China steadied on Thursday, a day after spot prices dropped to a two-week low amid slower buying interest among Chinese steel producers.
Spot iron ore has fallen 16 percent from this year's high following a rally that many had doubted would last as the market remained oversupplied.
"The buying activity was mainly from traders who kept very low inventory in the last few months and had been restocking with expectation that steel demand would come back strong in the next few months," said an iron ore trader in Shanghai.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI slid 2.7 percent to $53.20 a tonne on Wednesday, the lowest since March 16, according to The Steel Index.
The spot benchmark touched a nearly nine-month high of $63.30 a tonne on March 8, a day after soaring by a record 19.5 percent due to a surge in Chinese steel prices.
Iron ore is currently up 8.8 percent for the month.
On the Dalian Commodity Exchange on Thursday, the September iron ore contract DCIOcv1 closed nearly flat at 380 yuan a tonne after a volatile session that took it to a low of 372 yuan and a high of 385 yuan.
But the improved steel margins in the first quarter of the year compared to a year ago "may result in a possible turnaround" for Chinese producers in the current quarter, Argonaut Securities analyst Helen Lau said in a note.
"Supply-side reform will improve steel sector's fundamentals over the mid-to-long term," Lau said.
China said in January it plans to cut its crude steel production capacity by 100-150 million tonnes. rebar on the Shanghai Futures Exchange SRBcv1 gained 0.8 percent to close at 2,136 yuan a tonne, recovering from a session low of 2,105 yuan.
Blaming high costs and competition from cheap Chinese imports, India's Tata Steel TISC.NS has put its British operations up for sale, leaving thousands of jobs at risk. = 6.4642 Chinese yuan)