* Chinese cities announce new restrictions on property purchases
* Shanghai rebar hits 3-week low, Dalian iron ore at 2-week low
* China economy may support markets against further declines
By Manolo Serapio Jr
MANILA, Oct 10 (Reuters) - Iron ore and steel futures fell in China on Monday as investors sold them off after a week-long holiday amid ongoing government efforts to curb property purchases, a campaign that some are worried may cool steel demand for construction projects.
A number of Chinese cities including Beijing, Guangzhou, Shenzhen, Suzhou, Chengdu and Wuhan - in a bid to combat rising property prices - announced new restrictions on purchases and mortgage down payments during China's National Day holiday in the beginning of October.
China's central bank governor Zhou Xiaochuan said the government is "paying close attention" to rising property values in some cities and will take appropriate measures to promote the real estate market's "healthy development".
The increasing measures to restrict property price growth in China "will dampen construction demand, driving down the nation's largest driver of commodity consumption," said Commonwealth Bank of Australia analyst Vivek Dhar in a note.
The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange was down 1.4 percent at 2,232 yuan ($335) a tonne by 0243 GMT after falling as far as 2,209 yuan, the lowest since Sept. 19.
On the Dalian Commodity Exchange, iron ore was off 1 percent at 403.50 yuan. The steelmaking raw material touched 398 yuan earlier, a level last seen on Sept. 22.
Still, others said longer term that China's recovering economy will prevent a price collapse.
Activity in China's manufacturing sector expanded again in September, an official survey showed on Oct. 1, which may indicate that recent positive momentum can be sustained.
The measures on the property market "may in a sense affect sentiment but we don't really see a big crash in new (housing) starts because China's underlying economic condition is improving," said Helen Lau, analyst at Argonaut Securities in Hong Kong.
Activity in the physical iron ore markets may pick up this week after slow trading during China's Oct. 3-7 holiday.
Iron ore for delivery to China's Tianjin port .IO62-CNI=SI stood at $54.40 a tonne on Friday, the lowest since July 1 and down 1.5 percent for the past week, according to The Steel Index.
"So long as these restrictions are applied to only tier 1 and tier 2 cities we may still see construction volumes lift in tier 3 cities and below," Commonwealth's Dhar said in the note.
The lower tier cities accounted for 80-90 percent of new construction volumes during China's commodity boom and could still push China's commodity demand higher, said Dhar. ($1 = 6.6685 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Tom Hogue)