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Iron ore drops as fears of dwindling demand overshadows China's policy support

June 28 (Reuters) - Iron ore futures dropped nearly 3% in Singapore on Tuesday, struggling to stay above $120, as expectations of weakness in demand for the steelmaking ingredient outweighed hopes of additional economic stimulus for top steel producer China. But in China's Dalian Commodity Exchange, traders remained hopeful of a rebound, especially after Beijing's latest rhetoric on supporting the domestic economy reeling under the impact of COVID-19 restrictions and global headwinds. Iron ore's front-month July contract on the Singapore Exchange SZZFN2 fell up to 2.9% to $116.40 a tonne, after advancing to its strongest since June 17 at $121.05 earlier in the session. Dalian iron ore's most-traded September contract DCIOcv1 ended morning trade 1.9% higher at 775.50 yuan ($115.78) a tonne, after earlier hitting its highest since June 20 of 793 yuan. China will roll out tools in its policy reserve in a timely way to cope with economic challenges, a state planner official said on Tuesday. But the official ruled out flood-like stimulus, cited no specific measures and did not set a timeframe for any action. That follows recent remarks by Yi Gang, governor of China's central bank, that "monetary policy will continue to be accommodative to support economic recovery", while Chinese President Xi Jinping last week pledged to take more effective measures to achieve economic and social development goals. "The pressure to reduce crude steel production will curb the demand for raw materials," Zhongzhou Futures analysts said in a note. "The rebound is limited." Many analysts expect such pressure, which comes not just from weak demand but also from China's resolve to limit output this year at below 2021 production to curb emissions, to persist throughout the year. Construction steel rebar on the Shanghai Futures Exchange SRBcv1 rose 0.9%, while hot-rolled coil SHHCcv1 gained 0.7%. Stainless steel SHSScv1 slipped 0.6%. Dalian coking coal DJMcv1 climbed 1.8% and coke DCJcv1 advanced 2.1%. (Reporting by Enrico Dela Cruz in Manila; Editing by Rashmi Aich) ((enrico.delacruz@thomsonsonreuters.com)) The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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