* Shanghai rebar drops for a third straight day
* China iron ore imports fall for a 4th time this year
By Manolo Serapio Jr
SINGAPORE, July 10 (Reuters) - Shanghai steel futures slipped for a third day running on Tuesday after fresh data pointed to flagging domestic demand in the world's No. 2 economy and top steel market, while limited spot supplies kept iron ore prices afloat.
China's overall imports rose 6.3 percent in June from a year ago, less than half the projected increase in a Reuters poll, with the country's copper and iron ore purchases falling from May.
The key October rebar contract on the Shanghai Futures Exchange hit a session low of 4,014 yuan ($630) a tonne, its weakest since May 25. It was down 0.7 percent at 4,021 yuan by the midday break.
Weak steel prices have forced Chinese mills to curb output from record highs above 2 million tonnes on average a day in early May, leading to the fourth month-on-month drop in iron ore imports this year.
China, which buys around 60 percent of the world's iron ore, bought 8.7 percent less of the raw material in June than May. That followed declines in January, March and April.
"We're still expecting steel production to slow from the very high levels in May and because of that we're going to see a dip in iron ore consumption," said Matt Fusarelli, an analyst at Australia-based consultancy AME.
While Chinese demand for iron ore has eased, limited supplies in the spot market have kept prices from slipping, traders said.
Price offers for imported iron ore in China were steady on Tuesday, a day after benchmark 62-percent grade iron ore .IO62-CNI=SI gained 0.3 percent to $135.50 a tonne, based on data from the Steel Index.
"I have a few people inquiring for some small cargoes, like 50,000 tonnes, but they want to buy cheap," said a Hong Kong-based trader. "People are looking for cargo, but there's no rush."
"The limited available material in the market also prevents prices from falling as well. Miners don't want to flood the market with iron ore anymore, they don't want another October to happen," he said, referring to October 2011 when spot prices slid nearly 31 percent as slower Chinese demand combined with hefty supplies.
Rio Tinto sold a 165,000-tonne cargo of 61.5-percent grade Australian Pilbara iron ore fines at $136.21 a tonne on Monday, lower than the $137.80 transacted for the same grade last week.
"With supply tighter over the next few months I don't see much downside risk to prices. But we would want to see an increase in demand into the fourth quarter to offset potentially better supply," said Graeme Train, a commodity analyst at Macquarie in Shanghai.
Shanghai rebar futures and iron ore indexes at 0508 GMT
Contract Last Change Pct Change
SHFE REBAR OCT2 4021 -29.00 -0.72
PLATTS 62 PCT INDEX 136.5 +0.00 +0.00
THE STEEL INDEX 62 PCT INDEX 135.5 +0.40 +0.30
METAL BULLETIN INDEX 136.27 +0.15 +0.11
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3714 Chinese yuan)