Shanghai steel hits near 2-month top after break on demand hopes

* Iron ore prices seen rebounding as Chinese restock

* China slowdown may get worse and last longer-World Bank

By Manolo Serapio Jr

SINGAPORE, Oct 8 (Reuters) - Shanghai rebar steel futuresclimbed nearly 2 percent on Monday to the highest in almost twomonths as Chinese traders returned from a week-long break armedwith hopes demand in the world's top consumer will pick up asthe economy stabilises.

Steel's rise suggests prices of raw material iron ore arelikely to rebound this week, with Chinese mills also expected toreturn to the spot market to replenish stocks.

The most active rebar contract for January delivery on theShanghai Futures Exchange

hit a session high of 3,668yuan ($580) a tonne, its loftiest since Aug. 17.

Rebar outperformed other China-traded commodities, includingrubber and base metals, which drifted lower as a poor globaleconomy cast doubts on the outlook for raw material demand.

The World Bank cut its economic growth forecasts for theEast Asia and Pacific region and said there was a risk theslowdown in China, the world's No. 2 economy, could get worseand last longer than expected.

But a private sector survey showed China's services sectoractivity rebounded in September after hitting a one-year low inAugust.

Rebar is taking its cue from gains in spot steel prices inChina during last week's National Day break as traders look to abounce in demand.

The price of steel billet in China's key Tangshan area hadincreased to 3,340 yuan per tonne last week from 3,150 yuanbefore the holiday, said a Shanghai-based trader.

"The steel market had picked up during the holidays. Peopleare looking at an improvement in demand so we have this upbeatsentiment at the moment," the trader said.

Price offers for iron ore cargoes from top exporterAustralia rose between $1-$3 per tonne on Monday, according toChinese industry consultancy Umetal.

"People are pushing up prices hoping the market will begood. Steel prices are up and some mills are bound to restockafter the long holiday," said another trader in Shanghai.

"It will be a good start for the iron ore market this week,but whether the gains will be sustained I'm not sure."

Benchmark iron ore with 62 percent grade iron content

steadied at $104.20 a tonne for all of last week,but the second Shanghai trader said there's a chance the pricecould hit $110 today.

A cargo of Australian 57.7-percent grade Yandi iron orefines is on offer at a tender closing later on Monday, a HongKong trader said. The 210,000-tonne shipment was offered at theGlobalOre platform on Friday at $106 a tonne, with the best bidat $101, he said.

The Yandi grade was last sold at $99.50 per tonne before theChinese holiday, traders said.

Shanghai rebar futures and iron ore indexes at 0350 GMT

Contract Last Change Pct ChangeSHFE REBAR JAN3 3651 +54.00 +1.50PLATTS 62 PCT INDEX 107 +0.00 +0.00THE STEEL INDEX 62 PCT INDEX 104.2 +0.00 +0.00METAL BULLETIN INDEX 106.46 +0.00 +0.00Rebar in yuan/tonne

Index in dollars/tonne, show close for the previous trading day

($1 = 6.2849 Chinese yuan)(Editing by Miral Fahmy)

((manolo.serapio@thomsonreuters.com)(+65 6870 3884)(ReutersMessaging: manolo.serapio.reuters.com@reuters.net))