Shares in Anglo American Plc, which rejected a $68 billion merger approach from rival Xstrata Plc, edged higher on Tuesday on market talk of a possible bid from Aluminum Corp of China (Chinalco), dealers said.

Market speculation was for a 2,200 pence per share bid from Chinalco which would value Anglo at about 27.7 billion pounds ($45.6 billion), pushing Anglo shares up 1 percent to 1,715-1/2p by 1316 GMT, adding to its 4.6 percent gain the previous day.

Xstrata's potential offer was also dealt a blow as South Africa's mining minister Susan Shabangu said the government was opposed to a possible merger between Xstrata and Anglo, terming a potential move as unacceptable and uncompetitive.

Anglo snubbed Xstrata's plan for a nil-premium merger just a day after it was unveiled on Sunday, saying its assets were of much higher quality than those of its Anglo-Swiss rival.

South Africa, where Anglo has the bulk of its mines and employs about 110,000 workers, said it was concerned about the impact on jobs and competition from any possible combination.

Xstrata's approach for Anglo has brought both companies into play, with Brazilian miner Vale and China seen by analysts as potentially interested parties.

CHINA INTEREST

A Chinalco spokesman in Shanghai said the company was unaware of the bid talk, while Chinalco representatives in London and officials from Anglo declined to comment.

State-owned Chinalco suffered a setback earlier this month when Rio Tinto Plc, the world's No. 2 miner, dumped plans for a $19.5 billion tie-up and agreed to set up an iron ore joint venture with larger rival BHP Billiton.

We see some merit in recent press speculation that the Chinese may turn their attention to Anglo American, said analysts at Nomura in a note. We expect both Anglo and Xstrata to remain at the epicenter of the next wave of sector consolidation.

However, Dominic O' Kane, analyst at Liberum Capital, said he didn't see the logic of Chinalco approaching Anglo.

China is interested in iron ore, where Anglo is a relatively small player, but is not a major market for platinum -- or for diamonds.

Anglo produced 37.4 million tonnes of iron ore in 2008, compared with Vale's 293.4 million tonnes. It owns the world's largest platinum producer, Anglo Platinum, and has a 45 percent stake in De Beers, the world's No.1 diamond business.

Nomura said it saw more merit in a Vale/Xstrata combination than a Vale/Anglo linkup, due to potential iron ore antitrust issues and Vale's lack of experience in deep-level platinum mining.

Vale, the world's largest iron ore producer, made an unsuccessful takeover approach for Xstrata in 2008.

Nick Hatch, analyst at ING, said he also believed Vale will look hard at Anglo and in particular Xstrata.

(Additional reporting by Eric Onstad, Dominic Lau, Alfred Cang and Wendell Roelf; Editing by David Holmes)

($1 = 0.6070 pound)

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