China planning to buy stake in BHP Billiton

SYDNEY (Reuters) - China is planning to buy a more than 9 percent stake in miner BHP Billiton Ltd (BHP.AX) (BLT.L) as part of a plan to interfere in the miner's plan to buy rival Rio Tinto Ltd (RIO.AX), The Australian newspaper reported on Wednesday.

Citing unidentified sources in Beijing, the report said Chinese authorities were yet to determine which state-owned financial institution might take the lead role in seeking sellers within BHP's diverse shareholder base.

A BHP spokeswoman declined to comment.

Chinese companies and officials have expressed strong opposition to BHP's $135 billion (68.6 billion pounds) bid to buy Rio, citing concern that a combined company would have too much control over the prices of raw materials vital to China's booming economy.

Chinese state-owned company Chinalco bought a 9 percent stake in Rio Tinto for $14 billion in February just weeks before BHP launched its all stock offer. Rio has rejected the bid.

The latest report comes as Australian Prime Minister Kevin Rudd arrives in Beijing on Wednesday to meet his Chinese counterparts.

On Tuesday, BHP's London-listed shares jumped 4.6 percent amid market talk that Baoshan Iron and Steel Co (600019.SS), China's biggest steel maker, may be the buyer of a stake. BHP's New York-listed shares jumped 5.2 percent.

Analysts say the potential merger of BHP and Rio could further concentrate the commodities market and give producers of iron ore and coal great pricing power. Chinese steel mills see this as a disadvantage, which has prompted calls to secure the availability of raw materials.

The term price of iron ore has risen fivefold since 2001, while coal prices have surged this year because of strong demand from China and supply disruptions in Australia caused by port conditions and poor weather.