Australia iron ore miners jump amid China moves talk

SYDNEY (Reuters) - Shares in Fortescue Metals Group (FMG.AX), Australia's third-largest iron ore producer, jumped as much as 21 percent on Thursday amid market talk that it could be the focus of Chinese bid interest.

Shares in iron ore miners and prospectors have rallied since last week after global miner Rio Tinto (RIO.AX) (RIO.L) scrapped a planned $19.5 billion tie-up with China's Chinalco in favor of an iron-ore tie-up with rival BHP Billiton Ltd (BHP.AX) (BLT.L)

That has fueled speculation that China would now look elsewhere to secure iron ore reserves.

"It's all to do with the BHP/Rio deal," said Chris Kimbers, a client adviser with Bell Potter Securities.

"Everybody is waiting now that the Chinese have missed out. They still need to have their iron ore supply. It's likely that they will come back and do another deal with Fortescue," he added.

Fortescue shares climbed as much as 21 percent to an eight-month high of A$4.27. It last traded at A$4.20, having soared about 52 percent since Friday.

China's Hunan Valin Iron and Steel already owns about 18 percent of Fortescue, and traders said it was likely that Valin would look to raise its stake.

Shares in other iron ore firms also gained. Prospector Murchison Metals (MMX.AX) added 4.6 percent to A$2.05, Sundance Resources Ltd (SDL.AX) rose 5.7 percent to A$0.19, Iron Ore Holdings (IOH.AX) jumped 11 percent to A$0.77 and Brockman Resources (BRM.AX) rose 10 percent to A$1.28.

"The collapse of the proposed US$19.5bn investment by Chinalco in Rio is likely to accelerate China's assessment of other investment alternatives," CLSA said in a report dated June 10.

But CLSA downgraded its recommendation on Fortescue to underperform, saying the upside from a production expansion to up to 120 million tonnes a year was reflected in the share price. ( Reporting by Denny Thomas; Editing by Jonathan Standing)