* Oversupply to hit Chinese steel prices despite stimulus - CISA     * Chinese builder warns potential debt default      By Manolo Serapio Jr     SINGAPORE, July 17 (Reuters) - Chinese steel and iron ore futures edged lower on Thursday, moving further away from seven-week highs touched earlier in the week, as supply continued to outpace demand in top market China.     China's efforts to stimulate economic activity including infrastructure spending will help support steel demand, but excess supply will remain a drag on prices, the country's steel group said.  
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       China produced 2.31 million tonnes of crude steel a day last month, a new record high, even as prices barely recovered from six straight months of decline. Steel producers in China tend to keep their output high to shield their market share in a fragmented industry.     Daily crude steel output of the country's large steel mills averaged 1.814 million tonnes over July 1-10, up 2 percent compared with the last 10 days of June, data from the China Iron and Steel Association (CISA) showed.  
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       The most-traded rebar contract for January delivery on the Shanghai Futures Exchange  
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   was off 0.3 percent at 3,133 yuan ($510) a tonne by midday. Construction-used rebar touched 3,155 yuan on Tuesday, its highest since May 28.     A similar glut in supply has weighed on iron ore, with September futures on the Dalian Commodity Exchange  
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   down 0.6 percent at 714 yuan a tonne, after hitting a seven-week high of 725 yuan earlier in the week.     "Some steel mills are still selling their surplus iron ore from long-term contracts because they cannot consume that much," said an iron ore trader in Tianjin.     Chinese steel mills, the world's biggest buyers of iron ore, have been cutting back on long-term contracts with miners in favour of cheaper spot cargoes following a slide in prices this year.  
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       Benchmark 62-percent grade iron ore for immediate shipment to China  
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   was unchanged at $98 a tonne on Wednesday, according to data compiler Steel Index.     Iron ore fell below $100 a tonne on May 19 and has since been trading below that level, falling to a 21-month trough of $89 in mid-June.      The price of the raw material that earns top revenue for global miners Vale  
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   and Rio Tinto  
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   has dropped 27 percent this year.     Also weighing on market sentiment, a Chinese builder has warned its investors it may not be able to repay a $65 million debt due next week, possibly becoming the first borrower to default in the country's largest bond market and highlighting concerns over the construction sector.     Huatong Road & Bridge Group Co Ltd said it might fail to pay investors both interest and principal due on a one-year bill on July 23, revealing that its chairman was "assisting an official investigation."  
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          Shanghai rebar futures and iron ore indexes at 0419 GMT                                                                                               Contract                          Last    Change   Pct Change   SHFE REBAR JAN5                   3133     -8.00        -0.25   DALIAN IRON ORE DCE DCIO SEP4      714     -4.00        -0.56   SGX IRON ORE FUTURES AUG          98.5     +0.17        +0.17   THE STEEL INDEX 62 PCT INDEX        98     +0.00        +0.00   METAL BULLETIN INDEX             98.35     +0.46        +0.47                                                                                                                                                                                           Dalian iron ore and Shanghai rebar in yuan/tonne   Index in dollars/tonne, show close for the previous trading day  ($1 = 6.2034 Chinese yuan)   (Editing by Anand Basu)  ((manolo.serapio@thomsonreuters.com; +65 6870 3884; Reuters Messaging: manolo.serapio.thomsonreuters.com@reuters.net))  Keywords: MARKETS IRONORE/