UPDATE 1-Australia PM says caution needed on China spy case

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CANBERRA, July 10 (Reuters) - Australia is adopting a cautious approach to dealing with Chinese allegations of spying against Shanghai-based staff of Anglo-Australian miner Rio Tinto (RIO.AX) (RIO.L), Prime Minister Kevin Rudd said on Friday.

But Rudd, a China expert facing criticism at home for not intervening in the affair on behalf on the company and the one Australian citizen involved, said he would make whatever representations were necessary. "As with all complex consular cases, we have to proceed cautiously on the basis of the advice as it unfolds," Rudd said in an interview broadcast by state radio ABC. He was speaking from Italy where he was attending the G8 summit.

"The business of dealing with difficult, complex diplomatic questions, particularly when human lives are concerned, requires sensitivity and proper handling," Rudd said. "We'll make representations as appropriate, to whom it is appropriate, and at whatever level."

Chinese authorities on Sunday arrested four Rio Tinto employees, including the group's top iron ore salesman in China, Australian Stern Hu, alleging they were involved in stealing state secrets. The affair has cast a shadow over Australia-China relations.

Australian papers were critical of Rudd on Friday, with most calling it a crisis for his centre-left government and pointing to a serious deterioration in Canberra's relationship with its second largest export market.

"There is an air of contempt in the way the Chinese authorities have failed to respond to Australian government requests for information and for consular access to Mr Hu until today," wrote the Australian newspaper's foreign editor, Greg Sheridan.

"What does the much touted Australia-China relationship add up to if Beijing treats Canberra with such conspicuous discourtesy and indifference?" Sheridan wrote.

Rudd said Australian diplomats had made "strong" representations to Chinese officials and diplomats from the Beijing embassy were expected to gain consular access to Hu later on Friday. (Reporting by Rob Taylor; Editing by Jonathan Standing)