* Iron ore, China steel had worst week since May last week

* Iron ore stocks at China ports at record 106.35 mln T

(Updates prices)

By Manolo Serapio Jr

SINGAPORE, March 17 (Reuters) - Shanghai steel futures edged lower for a second session on Monday, pressured by lean demand that has curbed consumption of iron ore with stockpiles of the raw material across China's ports at a record high above 106 million tonnes.

Both Chinese steel futures and spot iron ore prices lost 3.6 percent last week, the biggest weekly loss for the two commodities since May last year.

The most-traded rebar for October delivery on the Shanghai Futures Exchange SRBcv1 closed down 0.6 percent at 3,229 yuan ($530) a tonne.

"Some steel mills have cut production capacity because of weak demand and tighter cashflow," said an iron ore trader in China's eastern Shandong province.

Chinese banks have cut lending by as much as 20 percent to sectors plagued by excess capacity including steel, part of Beijing's efforts to reform an economy that in three decades relied on cheap debt to expand at a double-digit pace.

That is tightening cash among Chinese steel mills which are also taking a hit from slower demand. Top listed steelmaker Baoshan Iron and Steel 600019.SS kept its prices for major products flat for April after hiking some prices this month.

The softer steel market has curbed appetite for spot iron ore cargoes, and traders say prices may be facing more downside risk.

Iron ore for immediate delivery to China fell 1.3 percent to $110.10 a tonne .IO62-CNI=SI on Friday, according to data provider Steel Index, cutting short a recovery from 17-month lows reached earlier last week.

The price recovered somewhat after sliding 8.3 percent last Monday in its deepest plunge since the aftermath of the financial crisis in 2009. But the rebound was short-lived.

"Stocks at the ports are still very high. I think the market has room to drop further," said an iron ore trader in Tianjin, a key delivery point for iron ore into China.

"Some of the owners of the stocks are trying to hold onto their cargo until the market recovers."

Inventory of imported iron ore at 43 Chinese ports stood at 106.35 million tonnes last week SH-TOT-IRONINV , up almost 23 percent this year, based on data from industry consultancy Steelhome.

Between 25 and 30 percent of those stocks are tied to financing deals, traders say, as tight credit conditions in China have fuelled the use of the raw material as a loan collateral. ID:nL3N0LI19X

"More cargoes are coming to China but consumption is weak. The supply pressure on prices may continue," said the Shandong-based trader.

Top miner Vale VALE5.SA is selling a 150,000-tonne cargo of 64.02-percent grade Brazilian Carajas iron ore arriving in China mid-April at a tender closing later on Monday, he said.

Iron ore for September delivery on the Dalian Commodity Exchange DCIOcv1 dropped 0.8 percent to end at 729 yuan a tonne.

Shanghai rebar futures and iron ore indexes at 0704 GMT

Contract Last Change Pct Change

SHFE REBAR OCT4 3229 -19.00 -0.58

DALIAN IRON ORE DCE DCIO SEP4 729 -6.00 -0.82

THE STEEL INDEX 62 PCT INDEX 110.1 -1.40 -1.26

METAL BULLETIN INDEX 109.66 -1.92 -1.72

Dalian iron ore and Shanghai rebar in yuan/tonne

Index in dollars/tonne, show close for the previous trading day ($1 = 6.1502 Chinese yuan)

(Reporting by Manolo Serapio Jr.; Editing by Sunil Nair)

((manolo.serapio@thomsonreuters.com)(+65 6870 3884)(Reuters Messaging: manolo.serapio.thomsonreuters.com@reuters.net))

Keywords: MARKETS IRONORE/