BHP may have to sweeten Rio bid: fund manager

NEW YORK (Reuters) - BHP Billiton's might have to sweeten its $147.4 billion bid for rival miner Rio Tinto to win over shareholders, one fund manager said on Wednesday.

The deal has been complicated by state-run Aluminum Corp of China (Chinalco) buying 12 percent of Rio's London-based stock in partnership with U.S. aluminum producer Alcoa Inc .

"Now that Chinalco is involved in Rio Tinto, there may be greater support from Australia's government for a BHP-Rio Tinto deal to create a larger, stronger mining company.

Shares in BHP tumbled 7.5 percent to A$36.66 on Wednesday in Sydney -- their steepest one-day percentage fall in 20 years. They ended 4.8 percent weaker in London and down 4.9 percent at $66.10 in New York.

Several Rio shareholders said BHP's bid was not enough to win them over and create the world's third-richest company, behind only Exxon Mobil and General Electric .

Chinalco and Alcoa, with funding available from China Development Bank, have reserved the right to make an offer for Rio if there was another bid, but sources familiar with the situation told Reuters the Chinese, just beginning the Lunar New Year holiday, were in no rush to make a move.

"The Chinese don't really care about aluminum. So if they were wanting to go for iron ore and other assets, Alcoa would be there to pick up certain pieces that they don't want or need," said the analyst who declined to be identified.

(Reporting by Steve James; Additional reporting by Jim Regan in Sydney, Eric Onstad in London and Carol Vaporean in New York; Editing by Gary Hill)