SHANGHAI, May 3 (Reuters) - Chinese steel futures gained more than 1 percent on Friday after dropping nearly 3 percent in the previous session to their lowest since September, while dealers stayed cautious on the demand outlook as recovery momentum in the global economy slows.
A benchmark rate cut by the European Central Bank overnight triggered a broad rebound overseas after worries over slower growth in the United States and China fuelled a sell-off from the start of May.
The most active rebar futures for October settlement on the Shanghai Futures Exchange jumped 1.49 percent to 3,610 yuan a tonne by the midday break. It earlier hit a session low of 3,545 yuan ($580) a tonne, not far from the 3,530 yuan trough on Thursday, the weakest since Sept. 7.
Slowing factory activity in China is likely to feed doubts about the prospects of a steady and gentle recovery in the country's economy, which has also been dented by the euro zone recession and sluggish U.S. demand.
The absence of strong economic growth suggested that steel demand in China, the world's biggest producer, was unlikely to perk up, weighing on the key raw material iron ore.
'I don't see any big improvement in steel fundamentals in near future. End users and traders are not stocking, leaving all the pressure on steel mills and forcing them to curb iron ore buying, while iron ore supplies will be increasing at the same time,' said an iron ore trader in Beijing.
'Iron ore prices are likely to fall to $120 a tonne as a floor level.'
Benchmark 62 percent grade iron ore slumped $4.7 to $129.4 a tonne on Thursday from 134.10 a tonne on Tuesday, according to the Steel Index. There was no price assessment on Wednesday due to a public holiday in Singapore.
'All we are hearing is negative news for the market at the moment, and I expect iron ore prices to fall to about $120 a tonne in near future,' said Yang Jun, an iron ore trader with Shanghai Sinom Import & Export Co.,Ltd. ($1=6.1560 Chinese yuan)
(Reporting by Ruby Lian and David Stanway; Editing by Clarence Fernandez) Keywords: MARKETS IRONORE/
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