UPDATE 1-Three Chinese groups eye Fortescue iron ore stake

(Recasts, adds Fortescue, analyst comment)

By James Regan

SYDNEY, May 12 (Reuters) - Chinese state-owned steel firms may be looking for a stake in Australian iron ore miner Fortescue Metals Group Ltd (FMG.AX), in the latest in a growing number of overtures by Beijing to wield more control over much-needed raw materials supplies.

The Australian newspaper said on Monday that Sinosteel, Chinalco and Baosteel (600019.SS) are looking at the 16 percent stake in Fortescue that U.S. boutique fund Harbinger Capital Partners was considering selling.

"We're not denying it," Fortescue spokesman Paul Downie said. "We're not sure if Harbinger is a seller or not."

Harbinger could not be immediately reached for comment.

Fortescue shares were up 1.4 percent at A$9.31 by 0306 GMT, in a broader market up 0.6 percent.

Any sale to a Chinese group is likely to require permission from the Australian government, which has raised concerns about foreign interest in the mining sector.

Australia's treasurer, Wayne Swan, has said foreign investment was welcome in Australian mining, though government-owned entities in China and other countries will be carefully scrutinised before any big investments can proceed.

Chinese steel mills' insatiable appetite for iron ore to feed strong demand as the economy booms has helped iron ore prices rise for six straight years, including a 65 percent gain in 2008 alone.

That in turn has raised the allure of Australian miners in the eyes of China's cashed up enterprises.

Baosteel, China's biggest steel maker, is set to take delivery of 170,000 tonnes of Fortescue ore, the first of 45 million tonnes the Australian miner aims to ship to China this year.

"The Chinese want iron ore wherever they can get it and Australia is the place to get it," said Eagle Mining Research analyst Keith Goode.

Chinalco, the Chinese aluminium maker that is looking to diversify into other raw materials, has bought 9.3 percent of sector heavyweight Rio Tinto Ltd/Plc (RIO.AX)(RIO.L), Australia's largest iron ore miner.

Chinalco's $14 billion raid on Rio's London shares in February was complicating a hostile offer for Rio by Australia's BHP Billiton Ltd/Plc (BHP.AX)(BLT.L), a merger the Chinese have opposed.

Another Australian iron ore start up, Midwest Corp Ltd MIS.AX, recently recommended a A$1.36 billion ($1.3 billion) offer from Sinosteel.

Midwest and Murchison Metals Ltd (MMX.AX) plan to build railways and a port from scratch to tap vast reserves of iron ore south of Fortescue's properties in Western Australia. Sinosteel this month also purchased 2.4 percent of Murchison's stock. ($1=$1.06) (Reporting by James Regan)