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Shanghai steel rises on prospects of downstream demand

* China's downstream steel demand remains firm - Marex Spectron

* Vale suspends rail freight line amid dam bursting risk

BEIJING, May 21 (Reuters) - China's steel futures edged up on Tuesday despite the concerns over escalating tension between the world's top two economies, as investors expect stronger steel demand from property market.

Although the costlier trade war had weighed on financial markets across countries, Chinese steel futures still managed to make some gains, supported by better-than-expected demand from property sector.

"Downstream steel demand (manufacturing and construction) remains firm, with the latest construction data reflecting improving construction activities," Hui Heng Tan, research analyst from Marex Spectron, said in a note.

Average new home prices in China's 70 major cities edged up 0.6% in April, while China's real estate investment surged 12% in April from a year earlier, the official data showed.

"Steel inventory has not been seen piling up at traders and mills, indicating demand is still solid," a Shanghai-based trader said.

The Sino-U.S. trade war escalated after the U.S. Commerce Department last week added China's telecom giant Huawei and its 68 entities to an export blacklist that makes it nearly impossible for the Chinese company to purchase goods made in the United States.

Alphabet Inc's Google was reported to have suspended some business with Huawei after Trump's blacklist.

Benchmark Shanghai rebar prices rose 1.7% to 3,838 yuan ($556.17) a tonne as of 0208 GMT. Hot-rolled coil futures advanced 0.8% to 3,680 yuan.

Dalian iron ore futures dropped 0.4% on Tuesday to 704.5 yuan per tonne after hitting to all-time record high level in the previous level, disturbed by market talking about Brazil's Vale SA to reopen some operations at its Brucutu mine.

On Monday, Mysteel, a Chinese commodities consultancy, reported that Vale would resume a third of production, or 10 million tonnes, at its biggest iron ore mines in Minas Gerais which has been shut since a tailings dam accident in January, killing hundreds of people.

Vale did not release any comment regarding the report.

The company said on Tuesday it has suspended the transport of freight on the Belo Horizonte branch line between Sabara and Barao de Cocais, a line operating in the vicinity of the Congo Soco mine pit where a dam was identified at risk of rupturing.

Dalian coking coal was little changed at 1,389 yuan, while coke contract rose 2.8% to 2,219 yuan a tonne, buoyed by strong physical prices. ($1 = 6.9008 Chinese yuan) (Reporting by Muyu Xu and Shivani Singh; Editing by James Emmanuel)