* Rains in China limiting construction activity
* Dalian iron ore erases early losses to end higher
By Manolo Serapio Jr
MANILA, June 21 (Reuters) - Shanghai steel futures fell nearly 2 percent on Wednesday, slipping for a second straight day on worries that continued rains in many parts of China would limit short-term demand in the world's biggest steel user.
Rains in China's eastern and southern parts have reduced construction activity, traders said.
The most-active rebar on the Shanghai Futures Exchange closed down 1.6 percent at 3,069 yuan ($449) a tonne.
Unfavourable weather conditions in China are dampening steel demand, but Helen Lau, analyst at Argonaut Securities, said that was just "short-term seasonality".
"If you look beyond the current seasonality, I'm still quite positive about demand," said Lau, citing sustained strength in property prices and firm macroeconomic data.
Home prices levelled off in China's biggest cities in May but continued to climb nationwide, indicating demand remains resilient despite a series of government measures to keep the market from overheating.
"Underlying property demand is good," said Lau.
Prices of iron ore futures diverged from steel. The most-traded iron ore on the Dalian Commodity Exchange ended 0.4 percent higher at 433.50 yuan a tonne, after falling as much as 2.9 percent during the day.
Demand in China even for lower grade iron ore was firm, as suppliers widened discounts, said an iron ore trader in Shanghai.
With some suppliers offering discounts of as much as 30 percent, "low-grade material seems attractive to certain mills," the trader said.
Iron ore for delivery to China's Qingdao port .IO62-CNO=MB rose 0.3 percent to $56.45 a tonne on Tuesday, the highest since June 2, according to Metal Bulletin. ($1 = 6.8318 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Joseph Radford)