UPDATE 3-Rio output mixed; China growth, bid talk lift shares

(Rewrites with London share price move, source comments)

By James Regan and Eleanor Wason

SYDNEY/LONDON, April 16 (Reuters) - Bid target Rio Tinto (RIO.L: Quote, Profile, Research, Stock Buzz) posted a mixed first-quarter production report, but its stock surged on talk that BHP Billiton (BLT.L: Quote, Profile, Research, Stock Buzz) might raise its offer and on stronger-than-expected economic growth in China.

Shares in Rio, which has rejected a BHP offer of 3.4 shares for one, currently worth $162.5 billion, climbed 3.8 percent to a record 6,238 pence in London, as talk swept the market that BHP would sweeten its offer to 4 shares for one.

But one source familiar with the matter told Reuters that he was not aware that BHP was working on a revised offer.

BHP (BHP.AX: Quote, Profile, Research, Stock Buzz) and Rio (RIO.AX: Quote, Profile, Research, Stock Buzz) declined to comment.

Rio said in its first-quarter production report that it was racing to meet rising global commodities demand, brushing aside fears that a U.S. recession would damage the mining sector.

"Markets remain very strong and the prices of many of our products are at record highs, bearing out our view that the U.S. slowdown will have little effect on global metal and mineral supply and demand balances," Chief Executive Tom Albanese told reporters on a conference call.

Rio reported a 23 percent fall in refined copper output as it mined lower grade ore, but a surge in aluminium output after its $38 billion takeover of Alcan.