Iron ore drops as fears of dwindling demand overshadows China's policy support

June 28 (Reuters) - Iron ore futures dropped nearly 3% in Singapore on Tuesday, struggling to stay above $120, as expectations of weakness in demand for the steelmaking ingredient outweighed hopes of additional economic stimulus for top steel producer China.

But in China's Dalian Commodity Exchange, traders remained hopeful of a rebound, especially after Beijing's latest rhetoric on supporting the domestic economy reeling under the impact of COVID-19 restrictions and global headwinds.

Iron ore's front-month July contract on the Singapore Exchange SZZFN2 fell up to 2.9% to $116.40 a tonne, after advancing to its strongest since June 17 at $121.05 earlier in the session.

Dalian iron ore's most-traded September contract DCIOcv1 ended morning trade 1.9% higher at 775.50 yuan ($115.78) a tonne, after earlier hitting its highest since June 20 of 793 yuan.

China will roll out tools in its policy reserve in a timely way to cope with economic challenges, a state planner official said on Tuesday.