* Steel hits downward limit of 7 pct
* Iron ore falls to limit low before close
* Trade war fears spark sell-off in commodities
* Weak steel demand also weighs (Updates prices)
SHANGHAI, March 23 (Reuters) - Chinese steel futures on Friday posted their biggest daily loss since the launch of the contract amid worries over the escalating trade tensions between the United States and China and weak demand for the metal.
The most active rebar on the Shanghai Futures Exchange hit a downward limit of 7 percent at 3,369 yuan a tonne, the lowest since July 11, 2017, and posting the biggest daily loss since the launch of the contract in April 2009.
It ended the week down by 7 percent, the steepest loss since end-2016 and was on track for the worst month since May 2016.
U.S. President Donald Trump signed a presidential memorandum on Thursday targeting up to $60 billion in Chinese goods including steel with tariffs, but only after a 30-day consultation period that starts once a list is published.
China also unveiled plans to impose tariffs on up to $3 billion of U.S. imports in retaliation against U.S. move.
“The prospects of trade war between U.S. and China has driven a systematic selloff in commodities. The market is in panic,” said Zhou Tao, an analyst with Citic Futures in Shanghai.
Weak steel demand has also helped accelerate the fall, Zhou added.
Traders built up stocks ahead of the Lunar New Year holiday betting that steel demand will pick up in March. However, a slow pickup in demand raised concerns that steel traders are likely to sell off their stocks to boost liquidity.
Rebar inventories held by traders in big cities rose to 9.79 million tonnes by March 16, the highest since April 2013, data from industry consultancy Steelhome showed.
Iron ore on the Dalian Commodity Exchange also hit a downward limit of 8 percent at 430.5 yuan a tonne before ending the session 6.42 percent down at 437.5 yuan a tonne, its lowest since late June 2017.
The contract fell for a fourth straight week, down 7.6 percent this week.
Coke dropped 6 percent to 1,852 yuan a tonne and coking coal shed 4.4 percent to 1,230 yuan a tonne.
Iron ore for delivery to China’s Qingdao port .IO62-CNO=MB eased 7 cents at $67.18 a tonne on Thursday, according to Metal Bulletin. ($1 = 6.3317 Chinese yuan) (Reporting by Ruby Lian and Josephine Mason; Editing by Vyas Mohan and Sherry Jacob-Phillips)