The decline in steel prices in China, the world's biggest producer, could stall an emerging recovery in iron ore prices which rose for a second day on Friday after declining for about a month.

"The rise in steel prices last week was pushed by traders, not end users.

We haven't really seen much cargo from our suppliers," said an iron ore trader in China's eastern Shandong province.

"We need to wait and see whether real demand will pick up or not this week.

This is quite essential to determine which direction the iron ore market will go."

Adding to demand concerns, China on Friday again raised banks' reserve required; the latest instalment in its monetary tightening cycle that many had thought would be put on hold after Japan's devastating earthquake.

"It's getting more and more difficult to get a loan from the bank. This will definitely impact the market," the trader said.

The most briskly traded rebar contract for October delivery on the Shanghai Futures Exchange fell 1.4 percent to 4,691 yuan a tonne, dropping for a third day in a row.

The contract hit a one week low of 4,684 yuan earlier.

Key iron ore indexes, based on spot transactions in China, rose on Friday.

Platts' 62 percent iron ore index jumped $2 to $168.50 a tonne, including freight, and The Steel Index's 62 percent benchmark gained 80 cents to $164.70.

Metal Bulletin's 62 percent gauge rose 81 cents to $164.30.

The indexes, which global miners use in setting quarterly contract rates, had slid 15 percent since hitting record highs near $200 in mid February before regaining some ground last week as some Chinese steel mills replenished dwindling stockpiles.

Top iron ore miner Vale said on Friday it will stick with quarterly pricing for sales to steelmakers, even as rival BHP Billiton sells some of its material on a monthly basis and would like its contracts to move even closer to daily spot prices.