* Dalian iron ore rallies as much as 5.9 pct * Shanghai rebar up nearly 5 pct to highest since July * China home prices rise at fastest pace in 2 years * Vale says licensing delays may curb output in Brazil By Manolo Serapio Jr MANILA, March 18 (Reuters) - Iron ore futures in China jumped more than 5 percent on Friday after a rally in Shanghai steel prices to their highest since July renewed buying in the raw material, with a brisk increase in domestic home prices reviving hopes for the property sector. China's home prices rose at their fastest clip in almost two years in February thanks to red-hot demand in big cities, data showed. But the risks of overheating in some places combined with weak growth in smaller cities threatens to put more stress on an already slowing economy. The most-traded rebar, a construction steel product, on the Shanghai Futures Exchange rose as far as 2,147 yuan ($332) a tonne, its strongest since July 3, 2015. It was up 3.8 percent at 2,125 yuan by the midday break. Construction activity in China typically increases in the second quarter amid warmer weather, encouraging steel mills to produce more. Analysts say stockpiles of steel traders have been falling gradually and that declines could gather steam later this month. As steel prices spiked, so did iron ore. May iron ore on the Dalian Commodity Exchange was last up 5.4 percent at 449 yuan a tonne after rising as much as 5.9 percent to hit 451 yuan. That was just shy of its upside limit of 451.50 yuan, a daily ceiling set by the bourse. On the Singapore Exchange, May iron ore rose 2.7 percent to $53.19 a tonne. That could extend gains in spot iron ore which on Thursday climbed 5.5 percent to $55.40 a tonne .IO62-CNI=SI , according to price assessor The Steel Index. "Some steel mills remain sceptical of the sustainability of current iron ore prices given the availability of spot iron ore cargoes at ports," Commonwealth Bank of Australia said in a note. The revival in spot iron ore follows recent wild swings. It surged by a record 19.5 percent on March 7, only to surrender nearly all of that in succeeding sessions through Tuesday. Those gains were also spurred by a rally in Chinese steel prices that was similarly stalled before resuming this week. Top iron ore miner Vale SA said on Thursday it could lose as much as 100 million tonnes of annual iron ore output in the Brazilian state of Minas Gerais over the next three years due to pending environmental licences. The Brazilian producer, in an email sent to Reuters, said licences for 88 projects were still being analyzed. If they were not approved, consequent shutdowns would halve Vale's output in the state. Rebar and iron ore prices at 0334 GMT Contract Last Change Pct Change SHFE REBAR OCT6 2125 +78.00 +3.81 DALIAN IRON ORE DCE DCIO MAY6 449 +23.00 +5.40 SGX IRON ORE FUTURES MAY 53.19 +1.42 +2.74 THE STEEL INDEX 62 PCT INDEX 55.4 +2.90 +5.52 METAL BULLETIN INDEX 56.09 +2.52 +4.70 Dalian iron ore and Shanghai rebar in yuan/tonne Index in dollars/tonne, show close for the previous trading day ($1 = 6.4659 Chinese yuan) (Reporting by Manolo Serapio Jr.; Editing by Joseph Radford)