BHP Billiton sees $3.5 bln savings in Rio deal: paper

SYDNEY (Reuters) - BHP Billiton Ltd/Plc (BHP.AX) (BLT.L) is targeting cost savings of at least $3.5 billion (1.68 billion pounds) from a merger with Rio Tinto (RIO.AX) (RIO.L), the Australian Financial Review reported on Monday.

The business daily, citing a letter from BHP's chairman to his Rio counterpart, said most of the savings would come from rationalising port and rail infrastructure in the Pilbara iron ore mining region of western Australia.

The savings would be achieved progressively, with the full $3.5 billion flowing through to earnings by 2013, the paper said.

Rio has rejected a $140 billion takeover offer from BHP, a move that is likely to trigger rival bids from resource companies awash with cash from record commodity and stock prices.

British newspapers reported over the weekend that BHP may be considering selling its petroleum business for $40 billion to help fund a Rio bid, while it has also lined up a $70 billion financing package.

The Australian Financial Review said that BHP is preparing to meet Rio's largest shareholders this week.

It also said that Australia's competition regulator, the Australian Competition and Consumer Commission, would be likely to endorse any merger of BHP and Rio, given that most of the two companies' customers are outside Australia.

(Reporting by Jonathan Standing)