Reuters reported that Chinese steel futures gained more than 1% on Friday after dropping nearly 3% in the previous session to their lowest since September, while dealers stayed cautious on the demand outlook as recovery momentum in the global economy slows.

A benchmark rate cut by the European Central Bank overnight triggered a broad rebound overseas after worries over slower growth in the United States and China fuelled a sell off from the start of May.

The most active rebar futures for October settlement on the Shanghai Futures Exchange jumped 1.49% to CNY 3,610 a tonne by the midday break. It earlier hit a session low of CNY 3,545 a tonne, not far from the CNY 3,530 trough on Thursday, the weakest since September 7.

Slowing factory activity in China is likely to feed doubts about the prospects of a steady and gentle recovery in the country's economy, which has also been dented by the euro zone recession and sluggish US demand.

The absence of strong economic growth suggested that steel demand in China, the world's biggest producer, was unlikely to perk up, weighing on the key raw material iron ore.

An iron ore trader in Beijing said that "I don't see any big improvement in steel fundamentals in near future. End users and traders are not stocking, leaving all the pressure on steel mills and forcing them to curb iron ore buying, while iron ore supplies will be increasing at the same time.”