* Market loses hope on supply increase - trader
* China to boost funding support for projects (Updates closing prices)
BEIJING, June 12 (Reuters) - China’s iron ore futures extended their surge to record highs on Wednesday, buoyed by concerns over tight supply and strong demand.
The most-active iron ore contract for September delivery on the Dalian Commodity Exchange soared as much as 4.5% to an all-time high of 778.5 yuan ($112.65) a tonne shortly after the market opened at 0100 GMT and settled 2.6% higher at 764 yuan.
It had hit a daily upper trading limit of 6% in the previous session.
Prices have rallied as investors expect that supply would not improve in the second half of the year following production disruptions at major iron ore miners in Australia and Brazil.
“After several weeks of waiting since the cyclone in West Australia and the fatal accident at Vale, the market has lost hopes on supply increase in the near future, but expectation over strong demand remains, which pushed prices further up,” said a purchase manager with a steel mill in the top steelmaking city of Tangshan in China.
China said on Monday it would allow local governments to use proceeds from special bonds as capital for major investment projects, in a bid to support the slowing economy.
More infrastructure projects such as highways, gas and power supply and railways are expected to come underway, which would boost steel consumption and, therefore, demand for steelmaking raw materials.
Meanwhile, a market talking on Tuesday suggested Australian iron ore miner Rio Tinto has informed some buyers bound by long-term contracts in China that some shipment with Pilbara Fines, a flagship product of the company, for July and August delivery will be replaced with lower grade products.
Reuters is unable to verify the authenticity of the news. Rio Tinto declined to comment on the matter.
But the talking intensified concerns over supply shortages of some iron ore products in the Chinese market.
Benchmark Shanghai rebar futures reversed early gains and closed down 0.2% at 3,776 yuan a tonne, while the hot-rolled coil contract stayed little changed at 3,620 yuan.
Dalian coking coal dropped 1.4% to 1,399 yuan, and coke futures dipped 2.3% to 2,114.5 yuan. ($1 = 6.9110 Chinese yuan) (Reporting by Muyu Xu and Shivani Singh; Editing by Subhranshu Sahu)