UPDATE 1-BHP chief sees likelihood of Chinese stake

(Recasts with BHP CEO, regulator comments)

SYDNEY, June 11 (Reuters) - BHP Billiton Ltd/Plc (BHP.AX) (BLT.L) Chief Executive Marius Kloppers said it would not be a surprise if a Chinese entity took a stake in BHP, given the country's need for resources and its big reserves of capital.

Australia is resource rich and geographically close to China, meaning freight costs are lower, making it an obvious choice for Chinese investment, Kloppers said in an interview with Sky News Australia broadcast on Wednesday.

"I would find it surprising in the medium to long term if China, which has got massive foreign reserves, does not invest some of that pretty broadly across this sector and in other sectors and indeed in our ourselves as well," he said.

His comments came amid persistent speculation that Chinese firms are seeking a stake in BHP to secure access to raw materials to feed a booming domestic economy and amid concerns over BHP's $170 billion takeover bid for rival Rio Tinto Ltd/Plc (RIO.AX)(RIO.L).

In the latest such report, the Sydney Morning Herald newspaper on Wednesday quoted an official connected with the China Iron & Steel Association as saying that Baosteel (600019.SS), Wugang and Angang (0347.HK) (000898.SZ) hoped to come together to invest in BHP.

It said a deal would likely to be financed by the China Development Bank, which funded a purchase in March by aluminium producer Chinalco of a 9 percent stake in Rio Tinto.

Chinese steel companies are concerned that if a merger between Rio and BHP did go ahead it would further entrench the stranglehold the two have on the global iron ore market.

Kloppers reiterated that BHP's bid for Rio Tinto would offer great synergies and value to shareholders of both companies.

Rio has rejected the bid as too low, and has touted its prospects as a separate entity, citing new projects such as a giant iron ore mine at Simandou in Guinea.

However, it said on Wednesday it had received a letter from Guinean authorities querying the validity of a decree covering its mining concession. Rio said it was in discussions on the matter and was confident it was in compliance with Guinean laws.

Separately, Australia's competition regulator has begun a review of BHP's Rio bid, seeking comment from the sector on the possible effects on competition of the takeover.

The Australian Competition and Consumer Commission (ACCC) said in the letter, posted on its Web site, that issues it was looking at included the availability of alternative sources of materials such as iron ore and thermal coal, as well as control over port and rail facilities the merged entity would have.

It is also looking for comment on how supply agreements may be affected by any merger. Responses are due by July 1, it said. (Reporting by Jonathan Standing)