SANTIAGO -(Dow Jones)- Chilean steel and iron producer Cap S.A. (Santiago:CAP) (CAP.SN) attributed the recent gains in its share price to the effects of the agreement that miner Rio Tinto PLD (RTP) reached with China's Baosteel on iron ore prices, according to a Wednesday filing with the Santiago Stock Exchange.

Earlier in the session, the stock market, in a separate filing, asked the company for an explanation for the recent stock price increases. In the first hours of Wednesday trading, Cap shares rose 8.4% from the previous session session. So far this week, Cap shares have risen 27%.

Shortly after the exchange filed its query, the shares lost ground.

Earlier this week, Rio Tinto, one of the world's largest iron ore producers, said its iron ore subsidiary Hamersley Iron had reached an agreement with China's Baosteel on the price for Hamersley iron ore deliveries for the contract year commencing April 1. The deal increased average iron ore prices by about 85% .

"In response to your query... we think that the answer (to the price hike) can be found in the recent press reports regarding Rio Tinto's announcement that it reached an agreement with China's main steel mill that raises prices an average 85%," Cap's General Manager Jaime Charles said in the filing.

In a report to clients earlier this week, Banchile Corredores brokerage said the Rio Tinto deal set a benchmark for Cap's 2009 price negotiations with its clients.

At 1650 GMT, Cap local shares were unchanged at 24,900 pesos ($49), while the benchmark Ipsa index was up 0.7% from Monday's close. In the past 52 weeks, Cap's shares have traded between a low of CLP9,655.40 and a high of CLP24, 901.00.

-By Patricia San Juan, Dow Jones Newswires; 56-2-820-4241; patty.sanjuan@ dowjones.com

    (END) Dow Jones Newswires   06-25-08 1328   Copyright (c) 2008 Dow Jones & Company, Inc.