(Releads, adds fresh quotes, Rio share price, more background)
By Rob Taylor
CANBERRA, July 21 (Reuters) - Australia's Foreign Minister Stephen Smith said on Tuesday he will raise China's detention of an Australian Rio Tinto mining executive for spying with his Chinese counterpart at a regional security meeting in Thailand.
Smith said he hoped to meet China's Foreign Minister Yang Jiechi at this week's Association of Southeast Asian Nations Regional Forum in Phuket in what would be the highest-level meeting yet on a case that has strained Australia-China ties.
"If my Chinese counterpart is there, I hope to have the opportunity to speak to him about Stern Hu," Smith told Australian state radio.
Chinese authorities this month detained four China-based Rio Tinto employees, including Australian Stern Hu, the miner's top iron ore salesman in China, alleging they were involved in stealing state secrets. Rio has defended its employees, saying claims they bribed Chinese steel mills were unfounded.
The detentions have raised concerns about doing business in China and overshadowed critical 2009 iron ore price negotiations in China, but Rio's share price has been little affected.
The shares added a further 3 percent on Tuesday to stand at A$54.94 by mid-session, up from as low as A$47.64 on July 13, on expectations of an improving global outlook for commodities.
Australia has warned China that the world is watching how it handles the Rio detentions.
The Australian government and Rio have said the detentions will not affect trade, but an influential opposition lawmaker has warned the detentions could see laws covering investment in Australian resource firms by foreign government-controlled entities, including state-owned Chinese firms, tightened up.
Senator Barnaby Joyce, the leader of the conservative Nationals party in the upper house, said he would push for the Senate Economics Committee, inquiring into foreign investment by state-owned enterprises and sovereign wealth funds, to recommend an overhaul of foreign-investment regulations.
"It raises all sorts of complications with corporate issues becoming diplomatic issues. I don't have to prove that any more in the light of the Stern Hu case," Joyce told the Sydney Morning Herald newspaper on Tuesday.
"Ownership of Australian businesses by state-owned enterprises is an inherently unhealthy thing and once you have ownership of our nation's resources by another nation's state-owned enterprises it is even more problematic."
These concerns were expressed last month over the failed plan for Chinese state-owned aluminium firm Chinalco to substantially increase its stake in Rio. The $19.5 bln tie-up collapsed when Rio joined forces with BHP Billiton's iron ore operations.
China is Australia's biggest trade partner, worth $53 billion last year, and iron ore exports injected $14 billion, powered by Rio, Australia's BHP Billiton Ltd and others.
"FACADE OF LEGALITY"
Australia has expressed frustration about the lack of information on the detentions and Prime Minister Kevin Rudd is under pressure to intervene with China's top leadership.
"We very strongly believe that the best way of seeking to protect and defend Mr Hu's interests is by a calm, methodical, assured approach," Smith said.
"If and when Stern Hu is charged ... we'll be there."
An Australian government lawmaker and foreign policy expert on Tuesday said China's justice system had only a "facade of legality" and that Canberra had "learned the hard way" that Australia-China relations must be handled carefully.
But Michael Danby, the Chairman of the Foreign Affairs Sub-Committee of Australia's Parliament, said prime minister Rudd should not intervene with China's top leadership. "The days when Western countries can demand exemption for their citizens in any Asian country are over, even in China, which maintains only a facade of legality," Danby wrote in the Wall Street Journal. (Reporting by Rob Taylor in Canberra and Sonali Paul in Melbourne; Editing by Michael Perry and Bill Tarrant)