REFILE-UPDATE 3-Freeport Indonesia union to sign deal, end strike

* Three-month strike has crippled output at mine

* Deal for 37 pct pay rise due on Tuesday or Wednesday - union

* Indonesia sees more strikes by workers over pay

* Mine's return would give copper smelters edge in price talks

By Olivia Rondonuwu

JAKARTA, Dec 13 (Reuters) - Freeport McMoRan Copper & Gold Inc and its Indonesian workers' union expect to sign a pay deal soon, ending a 3-month strike that has crippled production at the world's second biggest copper mine, union officials told Reuters on Tuesday.

The strike has been the highest profile stoppage among a slew of worker pay protests in Indonesia - signs of growing unrest over rising costs and a sense that the country's economic success is not being shared by all.

The two sides have agreed to a pay rise of 37 percent over two years to end Indonesia's longest-running industrial dispute, including a 24 percent rise in the first year, said Juli Parorrongan, spokesman of the Freeport Indonesia union.

The union earlier expected the deal to be signed at midday in Jakarta on Tuesday, though its vice-chairman Yoel Yalemal said that could be delayed until late Tuesday or into Wednesday. The reason for the delay was not clear, though such delays are common given slow moving Indonesian bureaucracy.

"Everything's ready ... I've pushed my flight back from tonight to tomorrow night," said Yalemal, referring to his trip from Jakarta back to the mine area in Indonesia's eastern Papua region.

Freeport declined to comment.

It was not clear when the U.S. firm would be able to resume production at the remote mountain Grasberg mine or end a force majeure declared in October on exports, which helped boost copper prices.

Prices for copper, used in power and construction, have fallen by about 12 percent since the stoppage began on Sept. 15, mostly due to uncertainty surrounding the European debt crisis, though supply worries have helped limit the price fall.

"It's positive for copper mine supply ... it should be negative (for prices)... It's good news for (Chinese) domestic copper smelters," said Grace Qu, a China-based copper consultant for CRU.

Benchmark copper prices on the London Metal Exchange fell half a percent after the Freeport news to $7,567.25 a tonne before recovering to $7,626 a tonne by 1045 GMT.

The union initially sought a pay rise to as much as $200 an hour, versus current pay of $2-$3 an hour. It had steadily dropped its demand in recent weeks to around $7.50 an hour, a level still deemed "excessive" by Freeport CEO Richard Adkerson, who has been in Jakarta to help broker a deal.

Many Freeport Indonesia workers, who are mostly Christians, had been worried they would not be able to afford to celebrate Christmas due to the strike, since they are not getting paid, leading to a push for a deal in the past week.

The pay deal could spur workers elsewhere in Indonesia to press for higher wages in Southeast Asia's largest economy.

The pay deal is twice the size of one awarded by Jakarta's governor late last month to avert a strike by more than 85,000 workers.

"If somebody asks for more, everybody will follow. That's a fact," Alwin Lubis, president director at Indonesian miner Aneka Tambang told Reuters recently. "That is what we're worried about."

COPPER PRICE TALKS

The Grasberg mine has the world's biggest gold reserves and also produces silver. It is part-owned by the government, which tried to mediate a deal as it is losing $8 a million a day in taxes.

Freeport had warned investors it may not achieve its fourth-quarter production and sales targets owing to the strike. It had expected sales of 185 million pounds of copper and 280,000 ounces of gold from Grasberg in the fourth quarter.

Papua has seen a long-running independence movement over resource revenues, and striking workers have been joined by spear-wielding tribesmen to blockade Freeport's supply routes.

While a pay deal is likely to end a blockade on the company's supply of food and fuel, restarting exports will take longer since the company needs to repair its main pipeline carrying metal concentrate to its port. The pipe was sabotaged and repairs were hampered by the security situation.

However, the resumption of Grasberg output is likely to give copper processing smelters bargaining power in talks with mines over treatment and refining charges (TC/RC) for converting concentrate into refined metal.

"The settlement will give smelters a bit of an edge in TC/RC discussions," said Nick Trevethan, senior commodities strategist at Australia and New Zealand Bank.

Freeport agreed a term TC/RC of $63.5 a tonne and 6.35 U.S. cents a pound for clean, standard copper concentrate for delivery in 2012 with major Chinese smelter Jiangxi Copper and Japanese smelter Pan Pacific Copper . The fees were 12.4 percent higher than this year's charges.