* Spot iron ore eyes biggest monthly gain since October
* Dalian iron ore futures end four-day rally
* Tighter liquidity as central bank skips open market ops
By Muyu Xu and Manolo Serapio Jr
BEIJING/MANILA, June 30 (Reuters) - Spot iron ore prices were set to post their biggest gain for the month of June since 2009 after this week’s rally fuelled by a stronger futures market in China.
Iron ore surged to an eight-week high near $65 a tonne as physical traders took their cue from rising Chinese futures, lifting daily volumes on physical trading platforms in China and Singapore to the highest level this year.
“I think the big reason for the sharp increase in spot prices was the strength in the paper market,” said a trader in Beijing. “But I‘m not too optimistic going forward because there’s still too much supply.”
Chinese iron ore futures climbed 9.7 percent this week as investors piled back into a market they sold down in recent months and as steel prices also recovered. But in a sign of investor fatigue, iron ore futures slipped on Friday after a four-day rally.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB jumped 3.8 percent to $64.71 a tonne on Thursday, the highest since May 4, according to Metal Bulletin.
The spot benchmark has risen 13.5 percent so far this month, its biggest monthly gain since October but the largest for the month of June since 2009. This week alone, iron ore has risen 14 percent so far.
Still, the steelmaking commodity has lost 19.5 percent for the second quarter, after steep losses in April and May.
“We continue to believe that as long as steel margins remain elevated, iron ore prices have upside potential as steel mills will look to increase production,” Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
The most-active iron ore on the Dalian Commodity Exchange was down 0.4 percent at 469 yuan ($69.31) a tonne by midday. The contract touched a five-week high on Thursday.
“Capital started to flow out since yesterday afternoon. The central bank’s statement this morning triggered more money to dash out from the bulk commodity sector,” said Xu Bo, analyst at Haitong Futures.
China’s central bank said it will skip open market operations for a sixth straight day on Friday with maturing reverse repos expecting to drain a net 330 billion yuan from the market for the week, the most since early February.
Coking coal was flat at 1,109.5 yuan a tonne, after soaring nearly 8 percent on Thursday. Coke slipped 0.2 percent to 1,733 yuan a tonne.
Rebar on the Shanghai Futures Exchange edged up 0.4 percent to 3,305 yuan per tonne.
$1 = 6.7668 Chinese yuan Reporting by Muyu Xu in Beijing and Manolo Serapio Jr in Manila