Vale fires Merrill as lead adviser on deal: source

LONDON (Reuters) - Brazilian mining giant Vale VALES.SA has fired Merrill Lynch & Co Inc MER.N as one of two lead advisers on a potential $90 billion bid for Xstrata (XTA.L) because the bank could not provide financing, a person familiar with the matter said on Monday.

Merrill declined to comment on the matter, which was first reported by the Financial Times.

The newspaper said Merrill had concluded that the terms of the financing were not economically feasible for either the bank's or Vale's shareholders.

Merrill has already missed out on advising brokerage client BHP Billiton (BLT.L) because it could not contribute to financing of the miner's planned takeover of rival Rio Tinto (RIO.L), other sources familiar with the situation have said. That deal was valued at about $140 billion when announced last year.

Merrill is the world's largest brokerage but its ability to lend to key relationships clients like BHP is hampered after it suffered the worst quarter in its history.

It posted a fourth-quarter net loss of $9.8 billion after the U.S. subprime mortgage crisis contributed to write-downs and adjustments of about $16 billion.

Advising on multi-billion dollar deals is vital to banks for mergers and acquisition league table credit, used to attract clients in the highly competitive M&A advisory business.

But companies often require advisers to provide financing for a deal, which has now become difficult thanks to the worst credit crisis in a generation.

Vale is seeking to raise a $30-40 billion loan to back its proposed bid for Xstrata just as banks are struggling to raise a $70 billion syndicated loan for BHP (BHP.AX).

Lehman Brothers Holdings Inc LEH.N remains adviser to Vale on Xstrata.

(Reporting by Eleanor Wason; Editing by Andrew Callus)