UPDATE 3-Vale to expand Peru mine; sees steady iron prices

* To immediately start $300 million Peru expansion

* Agnelli avoids comment on clients buying rival MMX

* Sees iron ore prices around $140 a tonne (Adds quotes, background)

By Teresa Cespedes

BAYOVAR, Peru, Aug 5 (Reuters) - Brazilian mining giant Vale (VALE.N) announced on Thursday it would expand its new mine in Peru and it expects iron ore prices over the coming months to hold steady around $140 a tonne.

Chief Executive Roger Agnelli said the Bayovar phosphate mine will be expanded over the next 18 months to lift capacity to 5.9 million tonnes a year from about 3.9 million tonnes. It will take another $300 million in investments.

Vale started production at the Bayovar mine in July after beginning the project in 2007. Total estimated investments were $566 million before the expansion was announced.

The mine, located near a desert coast, is one of only a couple mines in Peru to run using desalinated water from the Pacific Ocean.

"We have not finished the project yet, it is just getting started," Agnelli said at an event with Peruvian President Alan Garcia, who has worked to lure billions of dollars in foreign investment from neighboring Brazil.

"We are going to immediately start the expansion," Agnelli said.

The company has said exports from the mine will mainly be sent to Brazil, where demand for fertilizers is growing in one of the world's leading agricultural producers.

Vale has phosphate or potash projects in Brazil, Argentina, Canada and Mozambique. It has also recently acquired fertilizer companies.

PRICES, RIVAL MMX

Vale officials said they expect iron ore prices to be mostly stable over the next quarter.

"We don't expect any big movements in prices. Prices and demand in China are very firm," said Jose Carlos Martins, the company's director for strategy and business development.

Agnelli also said the company is working hard on its Canadian nickel project Goro.

Brazilian media reported this week that steel giant ArcelorMittal (ISPA.AS), a key Vale client, was mulling the purchase of a big stake in rival iron ore miner MMX (MMXM3.SA).

Agnelli declined to comment on Thursday when asked if such a move would hurt his company.

He said Vale has no interest in investing in MMX and that he won't sweeten the price offered for shares in copper company Paranapanema (PMAM3.SA). Vale late last month made a public offer to buy up paper of the firm at 6.30 reais ($3.15) a share. (Reporting by Teresa Cespedes; Writing by Terry Wade; Editing by Sofina Mirza-Reid)