A close advisor to one of the Brazil cabinet members told Reuters that high ranking government officials were not too keen on the takeover, saying the deal would be too expensive, too complicated and not in the country's interest.

A Brazil newspaper reported that the Government had instructed some members of Vale's controlling shareholder group, who also hold seats on the company's board, to vote against the deal.

The Government believes Vale, a former state-owned company, should remain in Brazilian hands which would not occur if Vale goes ahead with its structured acquisition plan that would see a large number of voting shares ending up offshore.

The news appeared to hit Xstrata shares hard on the London bourse, reportedly falling some 5% on Thursday before closing up nearly 1% at £33.93.

Meanwhile some sceptics believe the Brazilian Government's opposition is a tactic to lower the price of the acquisition which some analysts say could top $US100 billion.

"We feel the story is somewhat of a scare story in part released by Vale's advisers to negotiate a lower price for Xstrata," London's Liberum Capital head Michael Rawlinson was reported as saying in Bloomberg.

"We feel it inconceivable that Vale enter into detailed discussions in a major acquisition flagged since mid-December without having its own board behind it."

Meanwhile the newswire reported that the Brazilian mining giant is struggling to secure $50 billion in financing for a takeover of Xstrata.

It reported that a group of 12 banks want the company to pay higher interest rates if it loses its investment-grade rating. Vale would also have to sell $10 billion of new shares to boost capital if its rating is cut.

Vale's chief financial officer is reportedly in London negotiating with lenders.

Earlier this week Vale said it was in ongoing talks with Xstrata but stopped short of confirming a takeover.