Inco Ltd. on Tuesday urged shareholders to reject a C$19.35-billion ($17.4 billion) all-cash offer from Brazilian firm Companhia Vale do Rio Doce., and said it still backed a friendly offer from U.S.-based Phelps Dodge Corp.

The Canadian nickel giant Inco said it had held several conversations with CVRD and had been willing to start negotiations if the Brazilian firm had been ready to sweeten its offer.

But its board still recommends that shareholders vote in favor of Phelps' cash-and-share offer.

To date, CVRD has indicated that it is not willing to enter into substantive discussions or negotiations with respect to improving the CVRD offer, Inco said in a statement.

CVRD has offered C$86 a share for Inco. The Phelps offer is valued at C$85.76 per Inco share, based on Phelps' closing price of $87.82 in New York on Monday.

It was more or less expected but it's not the end of the battle, said Sao-Paulo based Itau mining analyst Paolo Di Sora, noting that Inco and CVRD started talks mid-August and that Inco expected CVRD to raise its offer.

Under a support agreement with Phelps, Inco had to say by Tuesday whether it supports or rejects the competing bid.

The agreement says Inco's board must continue to recommend that shareholders vote in favor of Phelps Dodge's offer unless it determines that a competing bid constitutes a superior proposal.

This is just a step in the process and there are several more important ones to go, said Charles Bradford of Bradford Research/Soleil. If CVRD came in with a little bit better offer, or if they got their approvals, that might be different.

He added: There is still plenty of time. Someone else could come along with another offer as well, because Phelps Dodge doesn't have all its approvals yet either.

Phelps requires approval from Investment Canada and the European Union, not expected until September, as well as approval from both Inco and Phelps shareholders.

Inco is holding a shareholder vote September 7, Phelps will hold its vote on September 25.

CVRD, whose offer expires September 28, needs regulatory approvals from Europe, the United States and Canada.

CVRD officials declined to comment.

On Monday, shares of Inco closed down 4 Canadian cents at C$86.10 on the Toronto Stock Exchange.

Canada