SINGAPORE, Jan 20 (Reuters) - Shanghai steel futures edged up to three-month highs on Friday and are eyeing their biggest weekly gain since early December, supported by firmer equities, and these gains may revive buying interest in iron ore.
The most-traded May rebar contract on the Shanghai Futures Exchange was up 0.3 percent at 4,322 yuan a tonne by the midday break, after rising as high as 4,334 yuan earlier, its loftiest since Oct. 14.
The contract has gained 2.2 percent so far this week and Friday's gains were its sixth consecutive daily rise.
Rebar's gains followed Asian equities, which touched two-month highs as easing concerns over Europe's refinancing capability boosted appetite for riskier assets.
But sluggish data showing China's manufacturing sector was off to a shaky start in 2012 kept price gains in check.
The HSBC flash manufacturing purchasing managers index (PMI), the earliest indicator of China's industrial activity, stood at 48.8 in January, a three-month high and a slight improvement on the 48.7 final reading of the December index.
Spot iron ore prices slipped to two-week lows as trading in top market China ground to a halt ahead of the Lunar New Year holiday, but some traders are hopeful of a rebound when the Chinese buyers return after the week-long break.
Any bounce may be limited though with market participants unsure whether China's steel demand will pick up strongly.
"People are counting on a possible rebound after Chinese New Year, but only because that's what's happened in the past years, not because they have any hard evidence," said Henry Liu, head of commodity research at Mirae Asset Securities in Hong Kong.
"The best case scenario would be a small rebound."
Iron ore with 62 percent iron content .IO62-CNI=SI eased 0.1 percent to $139.70 a tonne on Thursday, the weakest since Jan. 4, according to Steel Index.
"Few traders are looking to make new purchases, and those with cargo in hand prefer to wait until after the holiday to make sales," Steel Index said.