UPDATE 1-Brazil Vale says Ilva agrees to iron ore price rise

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SAO PAULO, Feb 20 (Reuters) - Brazil's mining giant Vale (VALE5.SA: Quote, Profile, Research, Stock Buzz) (RIO.N: Quote, Profile, Research, Stock Buzz) secured a 65 percent rise in iron ore prices for 2008 from Italian steelmaker Ilva, the second price agreement for the year in Europe, it said late Wednesday.

The 65 percent increase was for ore from Vale's southern mines system, matching the price hike agreed with other steelmakers.

Ilva also agreed to pay a premium for higher-quality ore from Vale's massive Carajas mine in the Amazon. The price increase for ore from Carajas will be 66 percent.

This rise for better-quality ore is similar to that agreed with German ThyssenKrupp (TKAG.DE: Quote, Profile, Research, Stock Buzz), earlier this week, but it's lower than the 71 percent increase agreed with Asian steel producers.

Even with the smaller increase, the European companies will pay slightly more for ore from Carajas -- $1.406 per dry metric ton Fe unit -- than the South Korean and Japanese mills, which will pay $1.2517 per dry metric ton Fe unit.

"The prices for 2008 reflect the continuity of the excessive demand in the global iron ore market," Vale said in a statement.

Under a long-standing practice between the world's top miners and steelmakers, the first companies to agree on prices usually set the benchmark for the rest of the industry.

Vale is the world's top iron ore producer. It is currently in talks to buy Swiss rival Xstrata (XTA.L: Quote, Profile, Research, Stock Buzz), a deal that some analysts say could surpass $90 billion. (Reporting by Inae Riveras; Editing by Marguerita Choy)