UPDATE 2-China's Baosteel may launch Rio Tinto bid -report

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By Alfred Cang and James Regan

SHANGHAI/SYDNEY, Dec 4 (Reuters) - China's top steelmaker, Baosteel, may bid at least $200 billion for miner Rio Tinto Group (RIO.L: Quote, Profile, Research, Stock Buzz) (RIO.AX: Quote, Profile, Research, Stock Buzz), topping a takeover proposal by BHP Billiton, Baosteel Chairman Xu Lejiang told a Chinese newspaper.

"We are considering (a bid). The possibility of a takeover plan going ahead is very big," Xu said in an interview with 21st Century Business Herald, adding it was important for Baosteel to have its own mines.

Asked about the price of a possible deal, he said: "200 billion is probably not enough."

Ian Head, Rio's spokesman in Melbourne, declined to comment on what he called market speculation, and a supervisor at Baosteel Group's publicity department said he was not aware of any talks that would link Baosteel with a bid for Rio Tinto.

BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz) (BLT.L: Quote, Profile, Research, Stock Buzz) has approached Rio Tinto with a $125 billion all-share takeover proposal, and BHP Chief Executive Marius Kloppers has toured China, South Korea and Japan in an attempt to get support from steelmakers.

BHP Billiton has not launched a formal bid for its smaller rival and, under British law, is under no pressure to make good on its "possible offer" until the bid is formalised.

Some shareholders are keen for BHP to make a firm bid, but Kloppers says he will be patient. The process could be dragged out further as both BHP and Rio are now beginning the annual round of iron ore contract negotiations.