Shanghai steel futures rose 5 percent, their biggest percentage gain on record, and spot iron ore posted its biggest gain in 10 months on Friday after China approved infrastructure projects to revive its economy, raising prospects of higher steel demand.

China gave the go-ahead for 60 infrastructure projects this week which analysts estimate total more than 1 trillion yuan($158 billion), or 2.1 percent of China's economy. The news lifted investor sentiment in a market hammered by weakening steel demand in top consumer China that has dragged down iron ore prices to three-year lows.

The most active rebar (reinforced bar) contract for January delivery on the Shanghai Futures Exchange moved up by 5 percent, its daily upside limit, to 3,406 yuan per tonne.

Benchmark iron ore with 62 percent iron content .IO62-CNI=SI rose 2.3 percent to $89 a tonne, after falling to $86.70 on Wednesday, its lowest since October 2009, according to data provider Steel Index.

"This is boosting investor sentiment in a market that has been waiting for so long for the government to do something to revive steel demand," said Helen Lau, senior commodities analyst at UOB-Kay Hian in Hong Kong.

But Lau said the sentiment lift may be temporary pending details on how these projects would be financed, with the central government unlikely to shoulder the funding burden.

China's continued curbs on the property sector may also limit the impact of the infrastructure projects, said Lau, noting that property construction accounts for 30 percent of China's steel demand versus 20 percent for infrastructure.

Steel traders in Europe said it will take months for China to implement these infrastructure projects and they are unlikley to lift physical steel prices until next year, as the industry is still massively oversupplied.

Despite the steep gain, Shanghai rebar dropped a marginal 0.3 percent for the week, stretching its losing streak to a fourth week after prices hit a series of record lows over the past three days.

Steel prices, down 18 percent this year, have been pressured by waning demand in China that has forced mills to curb output and trapped iron ore prices at near three-year lows.

The price of steel billet in Tangshan in China's top steel producing province of Hebei fell another 50 yuan to 2,690 yuan per tonne on Thursday, dropping by 200 yuan since Monday.

China's average daily crude steel output fell 3 percent to 1.872 million tonnes between Aug. 21-31 from the preceding 10 days, data from the China Iron and Steel Association showed on Thursday, as steel mills trimmed output amid slumping prices. Many however think that much bigger production cuts are needed to see any significant rebound in physical steel prices.