* Shanghai rebar drops 5 pct, sharpest fall in two months
* Dalian iron ore down 7 pct, coking coal slides 4 pct
* Growing steel supply amid slow demand (Adds other China commodities falling, stocks up; updates prices)
By Manolo Serapio Jr
MANILA, April 7 (Reuters) - Chinese steel futures fell 5 percent on Friday in the steepest single-day drop in two months, dragging down raw materials iron ore and coking coal, as investors worried about rising steel supply and tepid demand.
The sharp decline in steel futures has tamed buying interest in the physical market, traders said, as people held back, waiting until prices settle.
Outside of ferrous metals, other Chinese commodity futures were also sold off, including lead, zinc and rubber.
In contrast, China’s equities rose with the Shanghai benchmark hitting a 15-month high with risk appetite lifted by Beijing’s decision to launch a new economic zone in Hebei province.
The most-active rebar on the Shanghai Futures Exchange closed down 4.9 percent at 3,038 yuan ($440) a tonne, its sharpest fall since Feb. 3.
“The sudden drop in futures prices is holding back buying interest in the physical market,” said a Shanghai-based trader.
Beyond China, bonds and gold jumped in Asia on Friday, while stocks retreated, as investors fled to safe assets after the United States launched cruise missiles against an airbase in Syria.
Average daily crude steel output in China, the world’s top producer, recovered to 1.75 million tonnes over March 11-20 from around 1.6 million tonnes in the first 10 days last month, based on estimates by the China Iron and Steel Association.
That puts the average daily output in the first 20 days of March at 1.72 million tonnes, or equal to the average in February, said Richard Lu from CRU consultancy.
Amid rising supply and slower than expected demand, “end-users don’t want to hold stocks” with prices volatile, said Lu.
Iron ore for September delivery on the Dalian Commodity Exchange closed 7 percent lower at 525.50 yuan a tonne, after earlier falling by its 8 percent limit.
Stocks of imported iron ore at China’s ports stood at 132.1 million tonnes as of March 31, according to SteelHome. SH-TOT-IRONINV
A week before, the port inventory reached 132.45 million tonnes, the most since 2004 when SteelHome began monitoring the stockpiles, reflecting slow appetite for the raw material.
That is enough iron ore to build Paris’s Eiffel Tower nearly 13,000 times over and some Chinese ports are demolishing old buildings to create more storage space, trading sources have said.
Dalian coking coal was also swept up in the selloff, sliding 3.9 percent to 1,283.50 yuan a tonne, while coke - made from coking coal - dropped 4.4 percent to 1,818 yuan.
On Wednesday, coking coal climbed more than 8 percent - its biggest rally since November - after Cyclone Debbie disrupted shipments from Australia, the biggest supplier of steelmaking coal.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB slipped 0.8 percent to $80.92 a tonne on Thursday, according to Metal Bulletin. ($1 = 6.8973 Chinese yuan) (Reporting by Manolo Serapio Jr.; Additional reporting by Lusha Zhang; Editing by Richard Pullin)