ALUMINUM Corp of China, or Chinalco, received Australian approval yesterday to raise to 11 percent its stake in Rio Tinto Group, the target of a hostile US$143 billion takeover by rival miner BHP Billiton Ltd.

    "I have decided to raise no objections under Australia's foreign investment policy," Wayne Swan, Federal Treasurer of Australia, said yesterday.

    Chinalco, in partnership with Alcoa Inc, bought a 9-percent stake in London-based Rio in February and said in March it may seek to increase that holding, according to Bloomberg News.

    The bid by China's biggest aluminum producer may make it more difficult for Melbourne-based BHP to succeed in its all-stock takeover offer for Rio, the world's third-largest mining company. Chinalco may be seeking to increase its stake to block that deal, the Australian Financial Review reported.

    "This will underpin the Rio share price and also create uncertainty about whether or not BHP will get its deal over the line," said Stephen Bartrop, a resources analyst and director of Sydney-based Stock Resource. "Even if Chinalco doesn't increase its stake, it shows they have the capacity to block the deal."BHP closed 3.1 percent higher at A$40.15 (US$34.70) on Friday on the Australian stock exchange and Rio gained 0.7 percent to 5,179 pence (US$95.81) on the London Stock Exchange. Rio's stock is 14 percent below the 6,000 pence a share price paid by Chinalco and Alcoa when they bought their stake.

    "While Australia welcomes foreign investment in our economy, we will carefully examine national interest issues where these arise in relation to foreign sovereign ownership," Swan said.

    Chinalco will have to reapply to increase its stake beyond the level approved yesterday, and has agreed not to seek representation on Rio's board, Swan said. Swan's approval enables Chinalco to hold as much as 14.99 percent of Rio's London shares.