Iron ore miner Fortescue scraps $2.5 bln debt deal, shares drop

* Bond appetite lacking as oil prices fell - CFO

* Fortescue refused to pay yield of 8.5 pct

* Chinese steelmaker says confident FMG in good shape

* Shares drop nearly 9 pct to more than six-year low (Adds CFO, analyst, Chinese shareholder comments)

By Mariana Santibanez and Sharon Klyne

SYDNEY/NEW YORK, March 18 (Reuters) - Australia's Fortescue Metals Group Ltd, the world's fourth-largest iron ore miner, pulled a $2.5 billion high-yield bond issue after investors rattled by tumbling ore prices balked at the offer, sending its shares to six-year lows.

The scrapped refinancing deal is the latest sign of anxiety about massive oversupply in the iron ore market and weak demand growth in China, which has left many smaller miners operating at a loss.

Built from scratch over the past decade, Fortescue's $11 billion mine won the support of Chinese steelmakers who were eager for a new supplier to compete with the likes of giants Rio Tinto and BHP Billiton .

Still saddled with some $7.5 billion of net debt, Fortescue had been looking to push out its debt repayments by up to four years to 2021 and cut its interest costs as slumping iron ore prices squeeze its profits.

"It's disappointing, because if they were successful, it would have meant there was basically no debt due this decade," said Macquarie analyst Hayden Bairstow.

"Their ability to weather any volatility in the iron ore price would have been much better."

Macquarie expects iron prices to take another leg down to $48 at tonne in the September quarter from $57.60 at present, the lowest since index pricing was introduced in 2009.

Big iron ore producers are still ramping up production, while China, the world's biggest user of the steel-making material, has set its lowest target for economic growth in 15 years.

Fortescue said it cancelled its planned $2.5 billion seven-year senior secured bond offering in New York, as it was unwilling to pay a high yield.

Market sources told Reuters the miner had been prepared to pay up to 8.5 percent, well above its current average borrowing cost of about 5.3 percent, but Fortescue Chief Financial Officer Stephen Pearce denied it had offered this much.

"I can assure you we were never offering a yield of that quantity because we are very disciplined about the cost of capital we are prepared to take on," Pearce told Reuters.

He said the company was not under immediate pressure as it was still making money and had $1.6 billion in cash on hand as of December, so it could continue to pay down debt and refinance closer to 2019, when it is due to repay $4.9 billion.