UPDATE 3-POSCO may raise steel prices, interested in Daewoo

(Adds China plan, updates shares)

By Miyoung Kim

SEOUL, April 3 (Reuters) - South Korea's POSCO (005490.KS) said on Thursday it was considering a rise in steel prices, easing fears that rising raw material costs will hit its earnings, and lifting its shares to a four-week high.

The company, the world's fourth largest steelmaker, also said it may bid for Daewoo Shipbuilding (042660.KS), which analysts say could fetch nearly $5.1 billion, and was considering buying a stake in a Chinese firm.

"We are considering raising steel prices but details in terms of the timing and the level of the price hike haven't been decided," a POSCO spokesman said. POSCO reports earnings a week on Friday.

The potential price hike, which would be the second this year, soothed concerns that rising costs of raw materials, such as iron ore and coking coal, will eat into its profits.

POSCO agreed to a 65 percent hike in iron ore prices with Brazilian mining firm Vale (VALE5.SA) RIO.N in February but has yet to deal with other mining majors such as BHP Billiton (BHP.AX) (BLT.L) and Rio Tinto (RIO.L) (RIO.AX).

The term price of iron ore has risen fivefold since 2001, while coal prices have surged this year because of strong demand from China and supply disruptions in Australia caused by port conditions and poor weather.

POSCO shares hit a 10-month low last month, unseated by concern that the level of its price hike may lag rivals, as the new South Korean government moves to curb increasing inflationary pressure.

Taiwan's China Steel Corp (2002.TW) said in March it would raise its domestic steel prices 19 percent in the second quarter and China's Baoshan Iron and Steel (600019.SS) hiked their product prices by a higher-than-expected 17-20 percent.

"Expectations for a price hike are the main reason for today's rally but POSCO has to raise prices at least by 150,000 won to offset increased costs," said Moon Jung-up, analyst at Daishin Securities, estimating iron ore and coal costs would rise by 70 percent and 200 percent this year.

Shares in POSCO, the country's second-biggest listed company after Samsung Electronics (005930.KS), jumped 6.2 percent to close at 509,000 won.

POSCO last raised its hot-rolled steel prices by 11.5 percent from Feb. 1 and cold-rolled steel prices by 10.8 percent.

DAEWOO, CHINA

Separately it told the Korea stock exchange that the firm was considering buying a stake in a Chinese rival, as it seeks to expand its presence in the world's largest but most fragmented steel market.

Over the last few years, China has tried to force consolidation in the industry mostly by restricting approvals, loans and raw materials supply to outdated or small facilities to curb production growth outstripping demand.