Chinalco gets $120 bln from China for Rio bid-paper

LONDON, Feb 3 (Reuters) - China's state-owned aluminium group Chinalco will have access to $120 billion from the Chinese government as it prepares to fight the takeover of Rio Tinto (RIO.L) by BHP Billiton (BLT.L), The Sunday Times reported.

Chinalco teamed up with U.S. aluminium producer Alcoa (AA.N) to buy a 12 percent stake in Rio (RIO.AX) last week and said it did not currently intend to make an offer but reserved the right to do so if another company made a firm bid.

The Sunday Times said a $120 billion war chest will be made available to Chinalco through wealth fund the China Investment Corporation (CIC), which has made other overseas investments.

No-one at Rio could immediately be reached for comment.

A source familiar with the situation told Reuters on Friday that China Development Bank, a separate arm of the government, had funded Chinalco's $14 billion stake-building in Rio.

Rio, the world's second biggest miner by market value, has rejected a three-for-one all-share offer from BHP (BHP.AX) worth $126 billion at current prices. The Chinalco move presents a major obstacle for BHP in its attempts to complete the deal.

It must table a formal bid by Wednesday or walk away for six months.

Separately, The Observer newspaper reported that the Chinese government could launch a legal challenge against the BHP move. It said Beijing has recently drawn up framework legislation for the country's first competition law, which could be used to mount the challenge.

BHP's bid for Rio, which would create a global mining super power with a strong grip on a range of key commodities such as copper, coal and iron ore, has sparked a bidding frenzy in the mining industry.

Brazil's Vale (VALE5.SA) said last month it was in talks to buy Anglo-Swiss group Xstrata (XTA.L) in a deal which analysts said could approach $100 billion. (Reporting by John Bowker; Editing by David Holmes)