ArcelorMittal on Friday upped its offer for control of Baffinland Iron Mines to match a rival bid from Nunavut Iron for the vast iron ore deposit in the Canadian Arctic, in a deal worth $550 million.

Baffinland shares rose 2 percent to trade at C$1.45, above ArcelorMittal's sweetened offer of C$1.40 per share, suggesting some investors hope the bidding battle will continue.

ArcelorMittal has plenty of ammunition if the contest heats up: its cash and cash equivalents amounted to $3.5 billion as of end-September.

At stake in the takeover battle is Baffinland's huge iron ore deposit on Baffin Island in the northern Canadian territory of Nunavut.

The deposit is thought to be large enough to meet all of Europe's needs for many years, although developing the Mary River mine will be a major logistical and environmental challenge.

For ArcelorMittal, which aims to be about 80 percent self-sufficient in iron ore supply, a successful bid would mean more direct access to the key raw material -- a significant issue given tight global supplies and healthy demand from Chinese steel mills.

That strong demand has meant that major producers such as BHP Billiton, Rio Tinto, and Vale have considerable clout in their negotiations with steelmakers.

Nunavut Iron earlier this week raised its offer to C$1.40 a share for 60 percent of Baffinland's shares, valuing the company at about C$550 million ($550 million) and challenging ArcelorMittal's friendly bid of C$1.25 a share for all of the shares.

ArcelorMittal's increased offer of C$1.40 per share provides demonstrably superior value and certainty for Baffinland shareholders, compared to Nunavut Iron Ore Acquisition Inc's revised coercive partial offer, Peter Kukielski, head of mining and a member of the group management board of ArcelorMittal, said in a statement.

Our offer ensures shareholders receive 100 percent cash for all of their shares, rather than cash for just some shares and diluted value for the shares not taken up under the Nunavut offer.

An hour before its bid was due to expire on Wednesday, ArcelorMittal said it was extending the offer until January 10, but held the value of the bid at C$1.25 a share.

The bid from Nunavut, backed by U.S. private equity firm Energy & Minerals Group, improved on an earlier offer of C$1.35 a share for 50.1 percent of Baffinland shares. It already holds about 10 percent.

(Additional reporting by Robert-Jan Bartunek in Brussels; Editing by David Holmes, Erica Billingham, Dave Zimmerman)