* Karnataka exports unlikely to resume anytime soon
* Shanghai rebar futures stay near three-month highs
By Manolo Serapio Jr, Reuters
SINGAPORE, Aug 4 (Reuters) - Firm Chinese demand and tighter Indian supplies lifted spot iron ore prices to 2-1/2-month highs and traders said on Thursday that gains are likely to be sustained as long as China steel prices do not collapse.
Exports from India's southern Karnataka state, which have been on hold, are unlikely to resume anytime soon despite the appointment of a new chief minister on Wednesday to replace a predecessor who quit over a $3.6 billion illegal iron ore mining scandal.
Karnataka, which accounts for about a quarter of annual iron ore exports from India, the world's No. 3 supplier, banned shipments from July last year. India's top court ordered the state to lift the ban in April but exports have yet to resume.
Adding to the supply woes, India's Supreme Court last week banned mining in the iron ore-rich Bellary district in Karnataka.
"The market is very active right now. Problems in India and good steel demand in China are combining to push prices higher," said a Shanghai-based iron ore trader who sells Indian material to Chinese steel mills.
Some offers for Indian ore with 63.5/63 iron content have topped $190 a tonne, including freight, on Thursday, with the last spot cargo for that grade done at around $188, the trader said.
"We think the price can go up to $195 with the current level of activity and so long as Chinese steel prices don't fall sharply," he said.
Brisk trading pushed up index-based reference prices, based on spot deals in China and which global miners use in determining supply contract rates, to their loftiest levels since mid-May on Wednesday.
The price of 62-percent grade iron ore rose 0.3 percent to $179.50 a tonne, according to the Platts index IODBZ00-PLT.
A similar gauge by The Steel Index .IO62-CNI=SI edged up 0.2 percent to $177.70 and Metal Bulletin's benchmark .IO62-CNO=MB rose 0.6 percent to $177.69.
China's steel demand is getting a boost from its construction sector where a government drive to build more low-cost houses is encouraging steel mills to produce at breakneck speed.
The world's biggest steel producer and consumer, China expects this year's crude steel output to rise to a new record of between 690 million and 700 million tonnes from 627 million tonnes in 2010.
Shanghai rebar futures eased 0.3 percent to 4,929 yuan by the midday break, but still near the three-month top of 4,968 yuan reached on Monday.
"The iron ore market is relying on China and emerging economies and those countries are not so much tied up with what's going on in Europe and the United States," said Troy Flannery, senior mining analyst at DJ Carmichael in Perth.
"So prices should remain strong," he said.
Fears are mounting over a global economic slowdown amid a spate of poor indicators in the United States including weaker manufacturing and services sector numbers along with a deepening debt crisis in the euro zone.