By Manolo Serapio Jr

SINGAPORE, Jan 11 (Reuters) - Iron ore dropped from 15-month

highs as Chinese buying interest thinned following a rapid rise

in prices since December, and could slip further on concern that

China's steel demand recovery remains shaky.

Shanghai steel futures fell more than 2 percent on Friday,

snapping a five-week winning streak after data showing

higher-than-expected Chinese inflation curbed expectations for

further monetary easing to aid the economy.

An intensifying cyclone that has shut two Australian ports

handling a fifth of the world's globally traded iron ore has yet

to affect physical prices as Chinese buyers mostly stepped back

after a restocking spree that lifted prices by more than 80

percent since September.

Iron ore swaps fell for a third day on Friday on

expectations spot prices could fall further.

Iron ore with 62 percent iron content, the

industry benchmark, dropped 0.2 percent to $158.20 a tonne on

Thursday, according to Steel Index. The price hit $158.50 on

Tuesday, the highest since Oct. 13, 2011.

'Prices appear to have risen beyond economic sensibility and

are likely to pull back towards our forecast for the price to

average $125 per tonne for 2013,' brokerage SP Angel said in a

note.

Prices for most swaps declined, reflecting

investor expectations that spot rates could fall after a rally

that pushed up prices by over a third since early December.

The February contract cleared by the Singapore

Exchange dropped to $138 a tonne after settling at $141.06 on

Thursday, brokers said, based on afternoon deals in Asia. March slipped to $129 from $135.31.

The Q2 contract was done at $127, down from $130.25 in the

previous session, while Q4 eased to $118 after settling at

$121.25 on Thursday, brokers said.

NO BIG THREAT SEEN FROM CYCLONE

Traders were not too worried a tropical cyclone off

Australia's northwest coast would severely disrupt shipments of

iron ore from the world's top supplier.

'The Australian cyclone is a bullish point, but I think

everyone is trying to front-run the collapse in prices. The

cyclone will only affect things for a few days in the nearby

month,' said Jamie Pearce, head of broking at SSY Futures.

'I think realistically the next target will be the $120-$130

range.'

Rio Tinto, the world's second-largest iron

ore producer with 20 percent of the world market, on Thursday

suspended ship loading at the ports of Dampier and Cape Lambert.

About 200 kilometers (124 miles) north from the storm's

path, the Port Hedland marine shipping terminals remained in

operation. Port Hedland is used by BHP Billiton , Fortescue and Atlas Iron to supply a

further 20 percent of the world market.

'Unless Port Dampier will be hit directly, we don't expect a

big disruption in shipments. There will probably be a bit of

congestion building up, but it's going to be a short-term

thing,' said a trader in Singapore.

A decline in Chinese steel prices amid a still fragile

recovery in demand may also push back iron ore buyers. China

imported a record 70.94 million tonnes of iron ore in December,

bringing purchases last year to an all-time high of 743.6

million tonnes.

The most-traded rebar contract for May delivery on the

Shanghai Futures Exchange closed down 2.4 percent at

3,925 yuan ($630)a tonne.

Rebar hit a six-month high of 4,047 yuan earlier this week,

but Friday's drop caused it to post a weekly drop of 1.6

percent, ending a five-week winning run.

Rebar and other Shanghai-traded commodities followed losses

in equities, with Shanghai's key stock index suffering

its worst day in four months after China's annual consumer

inflation accelerated to a seven-month high of 2.5 percent.

Shanghai rebar futures and iron ore indexes at 0750 GMT

Contract Last Change Pct Change

SHFE REBAR MAY3 3925 -95.00 -2.36

THE STEEL INDEX 62 PCT INDEX 158.2 -0.30 -0.19

METAL BULLETIN INDEX 157.99 -1.05 -0.66

Rebar in yuan/tonne

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

($1=6.2244 Chinese yuan)

(Editing by Clarence Fernandez)

Keywords: MARKETS IRONORE/

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

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