UPDATE 2-CF Industries boosts cash portion of Terra offer

* CF's revised bid is about 5 pct higher than previous

* Says Morgan Stanley commits $2.5 billion financing

* Terra says will review offer in due course

(Adds background, CEO interview)

By Michael Erman and Anupreeta Das

NEW YORK, Nov 1 (Reuters) - Fertilizer maker CF Industries Holdings Inc (CF.N) edged up its hostile offer for smaller rival Terra Industries (TRA.N), removing what has been seen as a major obstacle for the bid by boosting the cash portion.

CF Industries said on Sunday it is offering to acquire Terra for $32 in cash -- including a $7.50 special dividend that Terra plans to pay -- and 0.1034 of a share of CF common stock for each Terra share.

That would amount to $40.61 per share based on CF's Friday closing price and represents a 28 percent premium to Terra's Friday closing price, the company said in a statement. It is about 5 percent higher than CF's previous stock bid of 0.465 CF shares for every Terra share.

Terra acknowledged receipt of the revised CF proposal and said it would review it in due course.

Terra has charged that CF would not be able to get its all-stock offer approved by CF shareholders. The new, mostly cash bid would not require approval from CF shareholders.

CF Chief Executive Steve Wilson said the company could raise its bid because of the improving stock and debt markets.

"In January the likelihood of putting together a package like the one Morgan Stanley has offered would likely have been impossible," he said in an interview.

CF said Morgan Stanley has committed $2.5 billion to provide funds for the transaction.

CF Industries is itself fending off a hostile takeover bid from Agrium Inc (AGU.TO). [ID:nBNG237646] (Reporting by Michael Erman and Anupreeta Das; Editing by Bernard Orr and Anshuman Daga)