UPDATE 2-Sterlite, Grupo Mexico up bids for miner Asarco

* Sterlite and Grupo Mexico face off over Asarco

* Sterlite, Grupo Mexico both up cash portion of bids (Adds details on Sterlite bid, increased Grupo Mexico bid, Asarco CEO testimony)

By Emily Chasan and Phil Wahba

NEW YORK, Aug 10 (Reuters) - India's Sterlite Industries (STRL.BO) and Mexican miner Grupo Mexico (GMEXICOB.MX) squared off in court on Monday and raised their respective bids for bankrupt U.S. copper miner Asarco LLC, which is seeking to end its four-year bankruptcy.

Sterlite offered to raise the cash portion of its bid to $1.58 billion, up from $1.1 billion, said Asarco lawyer Jack Kinzie at the start of a court hearing in Texas on Monday.

Including a note to creditors with a net present value of $83 million, Sterlite's new bid was worth $1.67 billion, Kinzie told the court.

"Sterlite is ready, willing and able to close the transaction, and has the means moving forward to close the deal," he said.

Grupo Mexico also upped its bid on Monday, increasing the cash portion by $260 million and bringing its value to $2 billion, a lawyer for Grupo Mexico told Reuters.

Asarco, which sought court protection in 2005 amid a worker strike and more than $1 billion of environmental damage and asbestos claims, is asking Judge Richard Schmidt of the U.S. bankruptcy court in Corpus Christi, Texas, to approve its sale to Sterlite as part of its reorganization plan.

Grupo Mexico, which opposes the move, bought Asarco in a leveraged buyout in 1999 but lacks board control because of the bankruptcy.

Judge Schmidt began hearing arguments on the merits of both plans on Monday. Arguments could extend into next week.

A flood of Asarco's creditors filed objections to Grupo Mexico's plan last week. The company's union, which supports the Sterlite deal, said Grupo's plan was inadequate and that it is very unlikely it could reach a labor agreement with the Mexican miner after months of "painstaking" negotiations.

"We know nothing about how they (Grupo Mexico) intend to operate this company," a lawyer representing the union told the court.

A decision by Judge Schmidt on Asarco's fate would bring to an end a more than year-long international battle over the sale of the copper miner, which owns three mines in Arizona. The sale could offer significant repayment to many of the company's creditors.

Sterlite made a $2.6 billion offer for Asarco in May 2008, but backed out of that deal in October, saying it needed a substantial reduction in price after copper markets fell.

Asarco Chief Executive Joseph Lapinsky acknowledged on the stand on Monday that he had concerns Sterlite could walk away from a deal for a second time.

That led Grupo Mexico to reduce its offer from an earlier $2.7 billion proposal that called for full repayment to creditors. Months of negotiation resulted in revised bids of $1.7 billion from Sterlite and $1.55 billion from Grupo that later rose.

A key issue in the hearing this week will be a U.S. federal court decision earlier this year that found Grupo Mexico in 2003 had made a "fraudulent transfer" of Asarco's "crown jewel," a controlling stake in Peruvian miner Southern Copper Corp PCU.N.

Judge Andrew Hanen, who sits in U.S. District Court in Brownsville, Texas, said Grupo Mexico should return the stake in Southern Copper to Asarco along with a cash payment, in a decision Asarco says is now worth about $7.5 billion.

Sterlite's plan for Asarco envisions keeping that judgment, while under Grupo's plan, it would be ineffective. Grupo is appealing the decision.

Grupo Mexico says its plan would offer more repayment to creditors and that it would pursue claims against Sterlite for backing out of its earlier deal.

Sterlite, an affiliate of London-listed Vedanta Resources Plc (VED.L), has been promised a break-up fee should its offer not go through.

The case is In re: Asarco LLC, U.S. Bankruptcy Court, Southern District of Texas, No. 05-21207. (Reporting by Emily Chasan and Phil Wahba; Editing by Rupert Winchester, Robert MacMillan and Steve Orlofsky)