SINGAPORE, Feb 9 (Reuters) - Shanghai steel futures slipped on Thursday as faster-than-expected inflation in China doused hopes of further monetary easing any time soon, weighing on appetite for iron ore.
China's annual inflation rate accelerated to a three-month high of 4.5 percent in January, well ahead of market expectations and breaking a five-month trend of easing price pressures as consumers increased spending during the Lunar New Year holiday season.
The latest inflation data gives Beijing limited room to aggressively ease liquidity conditions in the near term, economists said, some of whom had been looking at another cut in Chinese banks' reserve requirement ratio before March.
Tight credit had dented steel demand in China and many in the industry were hoping Beijing would continue slashing banks' reserve requirement after cutting them for the first time in three years in November.
"The central bank is more likely to maintain its current monetary stance for now and may wait for February data to decide on its next policy move," said Wang Jin, analyst at Guotai Junan Securities in Shanghai.
The most-traded May rebar contract on the Shanghai Futures Exchange dropped 0.9 percent to close at 4,297 yuan ($680) a tonne, falling for a third time in four sessions.
Sellers of imported iron ore in China cut offer prices by a dollar per tonne on Thursday, with buyers scarce.
Australian 61.5-percent grade Pilbara iron ore fines were quoted at $142-$144 a tonne, cost and freight, 58-grade Yandi fines were at $129-$132 and Indian 63.5/63-grade fines were offered at $149-$151, according to Chinese consultancy Umetal.
Australian miner BHP Billiton sold 63-grade Newman fines at $146 a tonne and 61.2-grade MAC fines at $142 on Wednesday, each $2 lower compared to a tender earlier this week, traders said.
In China's domestic spot market, cargoes are being sold at 10-20 yuan per tonne less than the offer price, a Shandong-based trader said, adding some sellers were opting to unload material with "little or almost no margin at all."
"That's how bad the market is right now," said the trader, who said his company recently sold a 20,000-tonne cargo at 1,060 yuan per tonne, only 5 yuan more than the purchase cost.
Iron ore with 62 percent iron content .IO62-CNI=SI fell 1 percent to $143.20 a tonne on Wednesday, said the Steel Index, the lowest level in about a week.
Some traders are also finding it hard to sell iron ore held in Chinese ports, some of which was bought at high prices.
"We still have about 200,000 tonnes of port stocks, some of them we bought in October and November and the current price is still about $7 to $8 lower than our purchase price," said a trader in Shanghai.
Stockpiles of imported iron ore at major Chinese ports -- comprised of material bought from the spot market and through long-term contracts -- topped 100 million tonnes last week.
Reflecting market expectations that spot rates could slip further, prices of iron ore swaps <0#SGXIOS:> extended losses on Wednesday, with nearby contracts at a discount to index-based prices.
Traders said news that China moved to support mortgage lending by ordering banks to provide loans to first-home buyers could support steel output and prices going forward.
"We don't see this as a substantial loosening of the current tight housing policy, but nonetheless, it is consistent with the government's policy aim of boosting housing affordability," Commonwealth Bank of Australia said in a note.
"We continue to expect growth in social/affordable housing construction to partly offset lower commercial real estate activity, thereby mitigating the risk of substantially lower steel output in China in 2012."
China's daily crude steel output inched up a modest 0.2 percent to 1.673 million tonnes in late January from the previous 10-day period, industry data showed.
Rio Tinto, the world's No. 2 iron ore miner, reported a 6 percent drop in underlying second-half profit and took a $9.3 billion charge mainly against its aluminium business, even as earnings from iron ore jumped 14 percent.