* Rebar, iron ore futures hit daily downward limit
* Big fall in billet surprises market, further hitting sentiment
* Spot iron ore falls to lowest level since April 21 (Updates prices, adds quote)
SHANGHAI/LONDON, July 6 (Reuters) - Chinese rebar futures slumped 5 percent to hit a record low on Monday on expectations that demand in the world's top producer is weakening further, prompting mills to cut output and reduce consumption of raw material iron ore.
The most traded October rebar futures contract on the Shanghai Futures Exchange SRBcv1 closed at 2,027 yuan ($326.54) a tonne, the lowest since the contract launched in 2009, hitting its daily downside limit.
A sluggish economy and a property downturn in China has hit steel demand and prices, with steel mills suffering growing losses and curtailing output.
"The market fundamentals are too weak. Mills are making losses while traders don't want to stock," said Li Wenjing, an analyst at Industrial Futures in Shanghai. "An increase in iron ore port inventories last Friday and a big decline in billet prices have dampened the market today."
Iron ore stocks at 42 Chinese ports rose to 81.97 million tonnes on Friday, up 1.7 percent from the previous Friday, data from industry consultancy Umetal showed.
Prices of billet, which often affect general market sentiment, dropped by 70 yuan to 1,730 yuan a tonne over the weekend. The fall in the semi-finished steel product's price was bigger than expected, traders said.
The most active September iron ore futures on the Dalian Commodity Exchange DCIOcv1 touched the daily downside limit of 4 percent, falling for the seventh day to 394.5 yuan a tonne, its lowest closing price since April 23
Most commodity prices suffered falls on Monday, compounding worries about oversupply, after Greece rejected terms for a bailout and top consumer China took emergency measures over the weekend to support the stock market. ID:nL8N0ZM03Z
The spot price for ore delivered into Tianjin port .IO62-CNI=SI sank 3.9 percent to $52 a tonne, the seventh consecutive daily decline and its lowest level since April 21.
"We've not necessarily seen the lows (for the year) and short-term momentum is clearly negative, but sooner or later ... probably by the fourth quarter ... demand for steel will recover because of Chinese policy," Bernstein analyst Paul Gait said.
Rebar and iron ore prices at 0700 GMT
Contract
Last
Change Pct Change
SHFE REBAR OCT5
2027 -107.00
-5.01
DALIAN IRON ORE DCE DCIO SEP5
394.5
-16.00
-3.90
SGX IRON ORE FUTURES JUL
51.4
-1.77
-3.33
THE STEEL INDEX 62 PCT INDEX
54.1
-1.70
-3.05
METAL BULLETIN INDEX
55.26
-0.37
-0.67
Dalian iron ore and Shanghai rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.2076 Chinese yuan)