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UPDATE 1-Shanghai steel hits near 2-mth top after break on demand hopes

* Iron ore prices seen rebounding as Chinese restock

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

* India top court bans iron ore transport in Goa

(Updates rebar price; adds Goa transport ban, Aquila project)

By Manolo Serapio Jr

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

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

The most active rebar contract for January delivery on the Shanghai Futures Exchange

hit a session high of 3,668 yuan ($580) a tonne, its loftiest since Aug. 17. It closed up 1.6 percent at 3,656 yuan.

Rebar outperformed other China-traded commodities, including copper and rubber, which drifted lower as a poor global economy cast doubts on the outlook for raw material demand.

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

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

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

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

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

POST-HOLIDAY RESTOCK

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

"People are pushing up prices hoping the market will be good. Steel prices are up and some mills are bound to restock after 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 price could hit $110 today.

A cargo of Australian 57.7-percent grade Yandi iron ore fines is on offer at a tender closing later on Monday, a Hong Kong trader said. The 210,000-tonne shipment was offered at the GlobalOre platform on Friday at $106 a tonne, with the best bid at $101, he said.

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

Also likely to support prices, India's Supreme Court on Friday suspended transport of iron ore in Goa, the country's top exporting state, part of government efforts to address illegal mining.

Goa exports nearly all of its annual output of more than 50 million tonnes.

India remains the third biggest exporter of iron ore to top market China after Australia and Brazil, although export and mining curbs have slashed shipments between January and August by nearly half from a year ago.

Iron ore prices struck a three-year low of $86.70 last month as Chinese steel demand cooled, prompting miners to review expansion plans. Aquila Resources

is scrambling to cut planned spending on an Australian iron ore project after cost estimates jumped by a quarter to A$7.4 billion ($7.6 billion), putting the investment at risk.

Shanghai rebar futures and iron ore indexes at 0703 GMT

Contract Last Change Pct Change SHFE REBAR JAN3 3656 +59.00 +1.64 PLATTS 62 PCT INDEX 107 +0.00 +0.00 THE STEEL INDEX 62 PCT INDEX 104.2 +0.00 +0.00 METAL BULLETIN INDEX 106.46 +0.00 +0.00 Rebar in yuan/tonne

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

($1 = 6.2849 Chinese yuan) ($1 = 0.9767 Australian dollar) (Editing by Himani Sarkar)

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

Keywords: MARKETS IRONORE/