Reuters reported that spot iron ore prices climbed the most in a day in 8 months and hit one week highs as Chinese mills replenished stockpiles ahead of the Dragon Boat Festival holidays next week.

But lean trading volumes suggest further price gains may be limited given a shaky steel demand outlook in top market China where the economy is growing at a slower pace than many had expected.

According to data provider Steel Index, Benchmark 62% grade iron ore .IO62-CNI=SI jumped 4.2% to USD 116.60 per tonne on Tuesday. That is iron ore's biggest daily percentage gain since rising by more than 6% in early October.

Traders said that the sharp increase came after global miner BHP Billiton sold two cargoes at higher than expected prices. BHP sold a shipment of 61% grade Australian iron ore fines at USD 117 per tonne at tender surpassing market expectations of USD 111 to USD 112. BHP also sold a cargo of Australian 62.7% grade fines at USD 120 per tonne similarly exceeding market expectations of USD 114 to USD 115.

A Shanghai based iron ore trader said that there's some restocking demand from mills before next week's holidays. Some mills have limited stocks and given their consumption remains reasonably high, it would be difficult for them to restock next week.

Chinese markets are shut for the holidays on June 10 to 12. A 90,000 tonne cargo of Australian 57.7% grade Australian iron ore fines was sold at USD 109.50 per tonne on the platform run by the China Beijing International Mining Exchange, nearly USD 5 more than a similar grade sold on the platform last Friday.

The rebound in iron ore prices followed a decline of more than 10% last week the steepest weekly drop since October 2011, as weaker steel prices curbed demand for the raw material.