UPDATE 1-POSCO eyes new Vietnam sites after plan rejected

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HANOI, Nov 14 (Reuters) - Vietnam has rejected a proposal by South Korean steel maker POSCO (005490.KS) to build a $5 billion steel mill due to fears it would hurt the environment in Vietnam's most popular resort area, state media reported.

Prime Minister Nguyen Tan Dung asked authorities in the southcentral province of Khanh Hoa to request POSCO choose another site for their project, the online newspaper VietnamNet (vietnamnet.vn) quoted a government directive as saying.

A POSCO spokeswoman said it was considering other sites for the project and talking to the Vietnamese government on the issue.

POSCO, the world's fourth-largest steel maker by output, had applied to build the mill in Van Phong Bay, near Khanh Hoa's beach resort city of Nha Trang, raising the public's concerns in one of Vietnam's most beautiful bays.

The Tuoi Tre (Youth) daily also quoted the government as saying the POSCO mill would affect a government's project to develop the country's biggest container transhipment port in Van Phong Bay.

Apart from the POSCO project, Hanoi has approved investments by foreign steel makers of at least $22 billion this year, including a $9.8 billion joint venture between Malaysia's Lion Industries (LLBM.KL) and top state-run shipbuilder Vinashin.

Other projects include $7.8 billion project by Taiwan's Formosa Heavy Industries and a $5 billion venture by India's Tata Steel (TISC.BO). (Reporting by Nguyen Nhat Lam; Additional reporting by Miyoung Kim in SEOUL; Editing by Lincoln Feast)