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SYDNEY (Reuters) - Shares of BHP Billiton (BHP.AX) (BLT.L) surged to a record high on Wednesday, fuelled by speculation that a state-controlled Chinese firm was building a stake in the world's biggest mining company.
Shares in BHP's bid target Rio Tinto (RIO.L) also climbed on continued speculation BHP is about to raise its offer.
Much of the speculation around BHP centred on giant Chinese aluminium maker Chinalco, already the largest shareholder in Rio Tinto (RIO.AX)(RIO.L) which BHP is seeking to acquire in a hostile, $177 billion (91 billion pound) all-share offer.
However, one source familiar with the matter said Chinalco had no any imminent plans to take a stake in BHP, and that the speculation was "just talk."
A Chinalco spokeswoman declined comment.
China is largely behind the huge profits that BHP and smaller rivals are generating as its booming economy gobbles up raw materials from iron ore to oil. The latest speculation is the second time in a month that Chinese firms have been named as possible buyers of a stake in BHP.
"There's a lot of rumours. I don't know what to believe," said Tom Elliott, managing director of hedge fund MM&E Capital, noting that Chinalco was mentioned as the Chinese buyer.
BHP Chief Executive Marius Kloppers told CNBC in an interview on Tuesday that he was aware of the rumours but would not comment.
"It's very difficult for us to make specific statements but certainly we've heard the same rumours over the last couple of days as you have," Kloppers said.
Earlier this month Kloppers said he was certain Chinese entities would eventually own part of BHP.
BHP stock rose nearly 7 percent in Sydney to a record A$48.90 a share and ended 6 percent higher at A$48.56 in above average volume, its biggest one-day gain since January 23.
The London-listed shares rose by as much as 5.9 percent to a new high of 2,139 pence, but by 12:15 p.m. British time had retreated to stand up 2.6 percent at 2,072 pence.
Rio shares closed more 3.55 percent higher in London at 6,872 pence. Talk began on Tuesday that BHP was about to offer 3.8 of its shares for every Rio share -- up from the existing offer of 3.4. Sources close to the matter dismissed the rumours, noting that Rio shares were trading below the current offer price based on Wednesday's closing prices.
They also pointed out that the presence of top officials from both companies at an industry conference in Florida might be fuelling speculation.
The latest rumours surrounding BHP and China suggested the Chinese buyer or buyers were aiming to accumulate a 10 percent stake in London, possibly at the equivalent of A$53 a share. That would work out to about 2,572 pence, or a 27 percent premium to Tuesday's London close.
Chinese companies have stepped up investment in Australian miners as they search for stable supplies of iron ore, coal, nickel and other industrial staples in short supply at home. In February, Chinalco paid $14 billion for 9.3 percent of Rio Tinto.
"If they're going to have to pay high prices for commodities ... it probably makes sense to own equity interests in the companies that produce those commodities, because they at least share in the benefit of those high prices," Tim Barker, an analyst with BT Investment Management said.
BHP's bid for Rio, which Kloppers sees as a way to create a super efficient mining house, has also galvanised Chinese companies, who fear a combined entity would have too much sway over pricing.
China sees its modern-day industrial revolution lasting decades, prompting it to take a longer view of metals prices and to spend sooner rather than later on securing steady supplies, according to analysts.
"I'm just really surprised that the Chinese didn't do this three years ago," said Adnan Kucukalic, equity strategist at Credit Suisse First Boston.
Australia has warned other countries it will scrutinise moves by state-owned entities to buy shares in BHP to make sure Australian interests were not threatened by a sale.
In the CNBC interview, Kloppers also would not rule out adding cash to its offer to win support from Rio's shareholders. BHP is offering 3.4 of its shares for every share in rival Rio Tinto (RIO.AX).
However, Kloppers said commodity price movements had made the offer more attractive recently.
"Since we made our bid I think oil prices have moved up substantially, other commodity prices which we have in our portfolio moved up substantially and since we are paying with our scrip, this means that the value of our offer has effectively increased," he said.
Additional reporting by Geraldine Chua and Ben Wilson in Sydney, Sonali Paul in Melbourne, Lucy Hornby in Beijing and Eleanor Wason in London; Editing by Kim Coghill and Andrew Callus