Australia set to back Valin-Fortescue deal - report

SYDNEY, March 31 (Reuters) - Australia is likely to approve Chinese state-owned steelmaker Hunan Valin Iron and Steel Group buying 17 percent of iron ore miner Fortescue Metals Group (FMG.AX), the West Australian paper reported on Tuesday.

"Although Treasurer Wayne Swan is yet to make his decision public, it is understood he will not object to the Hunan Valin Iron and Steel Group spending A$645 million ($438 million) to boost its stake in FMG to 17.4 percent," the paper said in an unsourced report.

Earlier this month, Fortescue said Australia's Foreign Investment Review Board (FIRB) had extended its review of the deal by an extra 30 days from March 25.

Fortescue, headed by founder and chief executive Andrew Forrest, is looking to reduce a debt burden of A$4.9 billion as of Dec. 31.

Last week, Swan blocked a proposed A$2.6 billion takeover of OZ Minerals Ltd (OZL.AX) by another Chinese state-owned company, Minmetals, on national security grounds.

That left OZ scrambling to get an extension on A$1.3 billion in debt coming due on Tuesday.

The FIRB is also considering Chinese state-owned aluminium maker Chinalco's $19.5 billion investment in Rio Tinto Ltd (RIO.AX)(RIO.L).

The government has been under pressure from opposition politicians to limit the Chinese state's influence in Australia's key mining sector.

Fortescue's deal with Valin would make the Chinese group its second-biggest shareholder behind Forrest and give it a seat on the board. ($1=1.473 Australian Dollar) (Reporting by James Thornhill; Editing by Sonali Paul)