* Dalian iron ore surges 6 pct to hit upside limit for 2nd day
* Shanghai rebar hits highest since May 2015
* China March iron ore imports up 16.5 pct vs Feb (Adds Fortescue, updates prices)
By Manolo Serapio Jr
MANILA, April 13 (Reuters) - Iron ore futures in China surged 6 percent on Wednesday, extending sharp gains for a third straight session, as a sustained increase in steel prices burnished appetite for the raw material.
Rising steel prices are lifting margins in China's steel sector, hit previously by massive losses amid slow domestic demand that showed signs of recovery after the Lunar New Year. That is encouraging steel producers to ramp up output and once-shut mills to restart production, boosting demand for iron ore.
Spot iron ore is back near $60 a tonne to its highest in a month, pushing its year-to-date gain to 36 percent.
"Traders are expecting increased iron ore buying from the mills given the larger increase in steel prices," said Wang Di, analyst at CRU consultancy in Beijing.
The most-traded September iron ore on the Dalian Commodity Exchange DCIOcv1 climbed as much as 6 percent to hit its exchange-set ceiling of 424.50 yuan ($66) a tonne, before closing at 419 yuan, up 4.6 percent.
It was the second day in a row that the contract surged 6 percent to hit its upside limit, following a gain of more than 3 percent on Monday.
On the Shanghai Futures Exchange, the most-active rebar SRBcv1 rose 1.8 percent to end at 2,353 yuan a tonne, off the day's high of 2,435 yuan, its strongest since May 6, 2015.
Many mills have increased their profit margin to 200-300 yuan per tonne, from zero earlier this year, said a Shanghai-based trader. "I believe mills would try to increase their production in the short term as much as possible," he said.
Iron ore for immediate delivery to China's Tianjin port .IO62-CNI=SI rose 4.7 percent to $58.50 a tonne on Tuesday, the highest since March 9, according to The Steel Index.
"If end-user steel consumption continues to surprise on the upside we could see iron ore supported around the $50-55/tonne mark," Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
China's iron ore imports rose 16.5 percent from the previous month to 85.77 million tonnes in March, data showed. imports were lower due to the Chinese New Year holiday and we're seeing increased demand for iron ore and seaborne supply also recovered after some disruption early this year," said CRU's Wang.
"Iron ore imports will likely remain high in the second quarter because major Australian miners will ship more to meet their annual target as their financial year ends in June."
Australia's Fortescue Metals Group FMG.AX shipped 42 million tonnes of iron ore in the March quarter, putting it on track to exceed its annual production target, while lowering cash costs by 6 percent from the previous quarter. = 6.4637 Chinese yuan)