Chinese iron ore futures rose for a fourth session in a row on Monday, supported by a firmer outlook for demand as steel prices recovered from last month's lows.
But expectations that supply of the steelmaking raw material could outpace demand in the world's biggest consumer kept Dalian iron ore futures below Friday's highs.
The most traded iron ore contract for May delivery on the Dalian Commodity Exchange was up 0.4 percent at 946 yuan ($160) a tonne at 0305 GMT.
The contract rose as high as 954 yuan on Friday, when it finished the session more than 2 percent higher after a government survey showed China's manufacturing activity hit an 18-month peak in October.
On Sunday, another survey revealed that activity in China's service sector expanded at the fastest pace in 13 months in October, another indication that the world's No. 2 economy has stabilised.
These positive economic signals have lifted Chinese steel prices, which has supported iron ore, said Ting Zhou, an analyst at Jinrui Futures in Shenzhen.
"But I'm not sure if we can see the price gains sustained because oversupply is still a concern and steel consumption in China cannot increase as fast as in the past," he said.
However, market participants are optimistic that a meeting of China's ruling Communist Party set for Nov. 9-12 could pave the way for economic reforms that could push up demand for steel and iron ore, Zhou said.
The most active May rebar on the Shanghai Futures Exchange was unchanged at 3,665 yuan a tonne after touching a session high of 3,685 yuan, its loftiest since Oct. 16.
Rebar has rebounded 2.5 percent since hitting a four-month low of 3,575 yuan last week.
Spot iron ore topped $135 a tonne on Friday as Australian and Brazilian miners sold cargoes at firmer prices via tenders, but some Chinese traders doubted it would go much higher in the short term.
"I don't see big buying from the mills. Most of them have enough stocks of material so you would not see a rush for buying," said a Shanghai-based iron ore trader.
"There's still plenty of available cargoes in the market, so I don't think we will reach $140."
Ore with 62 percent iron content .IO62-CNI=SI jumped 2.6 percent to $135.30 a tonne on Friday, its highest level since Sept. 5, according to data compiled by Steel Index.
"Despite the sharp move, mills remain cautious, waiting for the trend to become clear before engaging in any significant restocking activity," Australia and New Zealand Banking Group said in a note.