* Higher China steel prices behind recovery in iron ore
* Steel mills restocking ahead of China holiday
* BHP Billiton: Iron ore prices unlikely to repeat previous highs
SINGAPORE, Sept 19 (Reuters) - Shanghai rebar futures hit one-month highs on Wednesday on signs of a pickup in steel demand in top market China, prompting mills to restock iron ore and supporting prices of the steelmaking ingredient that fell by a quarter in August.
Iron ore prices rebounded from their lowest level in almost three years earlier this month after Beijing's approval of more than $150 billion in projects to build highways, ports and airport runways boosted the outlook for steel demand.
The most briskly traded rebar contract for January delivery on the Shanghai Futures Exchange closed up 1.6 percent at the session's high of 3,638 yuan ($580) per tonne, its loftiest since Aug. 17.
The Bank of Japan's move to boost its asset-purchase program, following similar measures in the United States and Europe, also boosted sentiment in rebar and other commodity futures and equities.
Rebar, used in construction, has now gained more than 13 percent since hitting a record low on Sept. 6.
Spot steel prices in China are rising as well, with steel billet in Tangshan in top steel producing Hebei province advancing another 60 yuan on Tuesday to 3,180 yuan a tonne, climbing more than 7 percent in just over a week.
Benchmark iron ore with 62 percent iron content .IO62-CNI=SI rose 4.3 percent to $109.60 a tonne on Tuesday, also the highest since Aug. 17, based on data from information provider Steel Index.
"The rapid increase in steel and iron ore prices is motivating traders to move into the market and take on cargo," said a Hong Kong-based iron ore trader.
"It's all about sentiment. Traders who earlier lost big time will want to take the opportunity to ride the market."
For a third straight day on Wednesday, price offers for imported iron ore cargoes in China rose as sellers try to unload cargoes at better prices after many suffered losses during a market rout over the past two months.
Price offers for Australian, Brazilian and Indian cargoes rose another $4-$5 a tonne, traders said.
Chinese mills are also replenishing iron ore inventory before prices go even higher, ensuring they have enough stocks ahead of the week-long National Day holiday in China next month, said a trader in Shanghai.
"I heard some mills are back to buying cargoes on long-term contracts because current spot prices are quite high," said the Hong Kong trader.
Prices for long-term contracts are usually based on the average of spot rates for the current month. Iron ore prices have averaged about $95 so far this month, after falling to $86.70 on Sept. 5, the lowest since October 2009.
But some traders are wary about the sustainability of the upturn in steel prices.
"I haven't really seen any strong increase in real demand for steel, so I'm not sure whether this rally in steel prices will last," said another Shanghai trader.
BHP Billiton, the world's biggest miner, said it does not expect a repeat of the "spectacular imbalance" between steel supply and demand in China that propelled iron ore prices to a record high above $190 last year.
BHP last month shelved its planned $20 billion copper and gold mine Olympic Dam expansion in Australia and put all other approvals on hold amid escalating development costs, slumping prices and an uncertain outlook.
Shanghai rebar futures and iron ore indexes at 0738 GMT
Contract Last Change Pct Change
SHFE REBAR JAN3 3638 +56.00 +1.56
PLATTS 62 PCT INDEX 111 +4.50 +4.23
THE STEEL INDEX 62 PCT INDEX 109.6 +4.50 +4.28
METAL BULLETIN INDEX 110.17 +4.42 +4.18
Rebar in yuan/tonne
Index in dollars/tonne, show close for the previous trading day
($1 = 6.3189 Chinese yuan)