Iron ore, Shanghai steel near 2-month peak as demand revives

* Firmer China steel prices, restocking lift iron ore

* BHP to cut iron ore jobs as demand slowdown bites

By Manolo Serapio Jr

SINGAPORE, Oct 9 (Reuters) - Spot iron ore prices climbed totheir highest in almost two months on Tuesday as steel millsfrom top buyer China snapped up cargoes to replenish stockpiles,encouraged by higher steel prices which also hit their loftiestsince August.

Miners are gradually increasing offers of iron ore cargoesin the spot market as more and more Chinese buyers return afterlast week's public holiday, although traders say some buyerscould soon recoil if prices rise too fast.

"Overall sentiment has been a lot better with the Chinesereturning this week," said Jamie Pearce, head of iron orebrokering at SSY Futures, part of the shipbroking group SimpsonSpence and Young.

"We have seen Chinese mills bidding high numbers onphysicals to try and secure cargoes," said Pearce, adding thatthe Chinese were also the main buyers of iron ore forward swapsso far this week.

Benchmark iron ore with 62 percent iron content

surged almost 6 percent to $110.40 a tonne onMonday, the highest since Aug. 16, according to data providerSteel Index.

It was the biggest single-day gain since early September foriron ore which didn't move last week during with China'snational holiday.

The upward momentum looks likely to continue, with sellerslifting price offers for imported cargoes to China by as much as$6 per tonne on Tuesday, traders said.

More cargoes are also on offer after prices spiked atMonday's sale tenders by miners Vale

and BHP Billiton, traders said.

Brazil's Vale, the world's top iron ore exporter, sold a65-percent grade cargo at $125 a tonne, including freight, upfrom a previous deal of about $116, said a trader in Shanghai.Third-ranked BHP Billiton sold 57.7-percent grade Yandi iron orefines at $106.65 per tonne, he said, versus $99.50 before theChinese holiday.

BHP Billiton is selling another 190,000-tonne of Yandi fineson Tuesday, while Vale is offering 150,000 tonnes of63.2-percent grade material and Rio Tinto


selling 165,000 tonnes of 61-percent grade Pilbara iron orefines, traders said.


Pearce said there is a chance iron ore prices can sustainthe upward momentum given the relatively modest amount ofmaterial on offer against Chinese demand.

"There has been lack of physical cargoes on offer recently,so you will see mills paying a premium to secure physicalcargoes which will give it upwards momentum. But I think we willsee some resistance though when we get around the $120 levels,"he said.

Firmer steel prices in China which suggest buyers are eitherseeing a pickup in demand or hoping for one, could supportfurther gains in iron ore.

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

hit a session high of 3,686yuan ($590) a tonne on Tuesday, a level unseen since Aug. 15.

Some traders with iron ore cargoes in hand are withholdingoffers, Steel Index said, suggesting some are waiting for pricesto rise further to boost returns that in recent months have beenwiped out at some trading firms as prices slid to three-yearlows after Chinese demand cooled.

Battling weaker demand and higher costs, BHP Billiton saidit plans to shed an undisclosed number of jobs in iron ore, itsmost profitable business.

BHP employs just under 6,000 people in its iron ore unit,out of more than 46,000 in the company worldwide excludingcontractors. Rivals Rio Tinto and Xstrata have both announcedjob cuts at their Australian operations over the past month.

Shanghai rebar futures and iron ore indexes at 0501 GMT

Contract Last Change Pct ChangeSHFE REBAR JAN3 3671 +15.00 +0.41PLATTS 62 PCT INDEX 112.5 +5.50 +5.14THE STEEL INDEX 62 PCT INDEX 110.4 +6.20 +5.95METAL BULLETIN INDEX 115.42 +8.96 +8.42Rebar in yuan/tonne

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

($1 = 6.2872 Chinese yuan)(Editing by Miral Fahmy)

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