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

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* Australia cautious on China Rio Tinto detentions

* Canberra calls in top China diplomat

* Case may harm trade; senior ministers visit China

By Rob Taylor

CANBERRA, July 10 (Reuters) - Australia was treading carefully over Chinese allegations of spying against Shanghai-based staff of Anglo-Australian miner Rio Tinto Ltd (RIO.AX) (RIO.L) which have sparked warnings of a trade crisis, Prime Minister Kevin Rudd said on Friday.

Rudd, a Mandarin-speaking China expert who is facing criticism at home for not intervening with China's President Hu Jintao on behalf of the company and an Australian citizen involved, promised whatever representations were necessary.

"The business of dealing with difficult, complex diplomatic questions, particularly when human lives are concerned, requires sensitivity and proper handling," Rudd told state radio ABC from Italy, where he was attending the G8 summit. The detentions came as China-Australia relations had already been going through a rough patch, with the iron ore negotiations running past a June 30 deadline and Rio Tinto ditching a planned $19.5 billion investment by state-owned Chinese metals firm Chinalco last month.

Chinese authorities on Sunday arrested four Rio Tinto employees, including 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.

It has also dented Rudd's image at home as a former Beijing diplomat with special understanding of China, although it is unlikely harm his high opinion survey ratings, with voters more focused on rising joblessness and unemployment.

In Canberra, senior Australian diplomatic officials spoke to acting Chinese Ambassador Liang Hong, who was summoned to the foreign ministry late on Thursday to discuss what Australian newspapers said was a fast-escalating crisis in relations.

"What does the much touted Australia-China relationship add up to if Beijing treats Canberra with such conspicuous discourtesy and indifference?" wrote the Australian newspaper's foreign editor, Greg Sheridan.

TRADE ISSUES

China is Australia's second-largest export customer behind Japan, buying A$36 billion ($28 billion) of mostly commodities in the 11 months ended May 2009. In 2008, more than half of China's imports from Australia were of iron ore.

Australia, along with Chile, is the largest recipient of Chinese investment this year, worth $3.9 billion, with Chinese companies anxious to lock-in access to resource exports.

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.