* Iron ore hits two-month high; steel futures also rise
* Some China steel mills restart as anti-smog measures eased
* Rebar margins at 300 yuan, HRC ekes out gains - analyst (Adds closing prices)
BEIJING, Jan 8 (Reuters) - Chinese iron ore prices climbed for a fourth session on Tuesday to strike a two-month high, supported by restocking demand at steel mills.
The most-active iron ore futures on the Dalian Commodity Exchange rose as much as 1.3 percent to 516 yuan ($75.26) a tonne, the most since Oct. 29, before closing 0.9 percent higher at 514 yuan a tonne.
Steel mills in China generally have no strong incentives to ramp up output due to thin margins and weak demand, noted Zhuo Guiqiu, analyst, Jinrui Futures.
“But some steel mills in Tangshan and Xuzhou that restarted operations after emergency measures were lifted still need to replenish their stocks of raw materials,” Zhuo said, referring to two of China’s key steel-making hubs.
Authorities in some cities, including Tangshan and Xuzhou, asked mills to curtail output in December to make sure of meeting targets on cutting pollution for the year. Meanwhile, some have since reopened.
Profit margins for rebar have fallen more than 66 percent since late October to 300 yuan ($43.77) a tonne this week, while hot-rolled coil is only just profitable, according to data compiled by Jinrui Futures.
Zhuo expects that more steel mills could schedule maintenance until the end of China’s Lunar New Year holiday in February.
Last week, utilisation rates at steel mills across China fell for a seventh consecutive week at 64.23 percent, as of Jan. 4, the lowest level in 9-1/2 months, data tracked by Mysteel consultancy showed.
Steel futures, meanwhile, shrugged off an early dip to also a rise for a fourth consecutive day, as investors hope for a direct stimulus package from Beijing.
Benchmark construction steel rebar prices closed 0.2 percent higher at 3,505 yuan a tonne, while the hot-rolled coil contract ended up 0.6 percent at 3,403 yuan a tonne.
Despite current weak demand, ongoing trade talks between China and the United States helped to support market sentiment, as investors hope the two parties can reach a deal to halt a bruising trade war.
$1 = 6.8562 Chinese yuan Reporting by Muyu Xu and Tom Daly; Editing by Richard Pullin and Sherry Jacob-Phillips