China dramatically waded into the battle for Rio Tinto today, splashing out $15 billion (£7.55 billion) to sweep up a stake in the London-listed miner in what is Bejing's biggest foreign investment.

The move will effectively give China a blocking stake to use against BHP Billiton, the Anglo Australian miner which is trying to buy Rio to create the world's largest mining group and the second biggest producer of iron ore.

A source close to the situation said it was likely that the Chinese would raise their stake to about 15 per cent over the next few days, which is the level beyond which they would need Australian regulatory clearance to buy any more shares.

One source close the Chinese said: "The central issue is that the Chinese have a huge demand for steel to drive their economy and they could not put themselves in a position where the majority of the world's iron ore is held by one company."

The source added: "This decision went right to the top, to the President."

BHP and Rio together are the world's second and third largest producers of iron ore, while China has very few natural resources of its own and is one of the world's largest consumers of the metal.

Earlier this morning, executives from BHP woke up to the news that China's state-controlled Aluminium Corp of China, known as Chinalco, and Alcoa, the American aluminium giant, had secretly swept through the London market overnight and snapped up a 12 per cent stake in Rio at a price of roughly £60 a share, way above the value of BHP's share offer currently equal to £48 a share.

BHP was not commenting.

Chinalco, which paid for the bulk of the $15 billion investment, made the audacious move just days before BHP's deadline for making a firm bid for Rio or walking away. It comes as Vale, the Brazilian mining giant and the world's biggest producer of iron ore, is itself considering a bid for Britain's Xstrata, which could be worth more than £35 billion.

The dawn raid also follows the Prime Minister Gordon Brown's visit to China last week, although sources said that Mr Brown had no idea of Bejing's intentions.

Rio shares surged some 10 per cent in early trading to £54.

China's move effectively sets a £58 billion price tag on Rio that BHP must at least match if it wants to win control. It also gives Bejing a poweful seat at the table and would enable the government to block BHP's bid if it chose to do so.

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