UPDATE 1-Grupo Mexico wins judge's backing in Asarco case

NEW YORK, Aug 31 - Mexican miner Grupo Mexico should be in charge of leading bankrupt U.S. copper miner Asarco LLC's emergence from bankruptcy rather than India's Sterlite Industries , a unit of Vedanta Resources PLC , a federal bankruptcy judge recommended on Monday.

Judge Richard Schmidt of the U.S Bankruptcy Court in Corpus Christi, Texas, said that while both plans for lifting Asarco "raised feasibility questions," Grupo Mexico's was the better of the two, because, he wrote, it is more likely to pay U.S. copper miner Asarco LLC's creditors in full.

Grupo Mexico and Sterlite have been locked in battle for Asarco, which filed for bankruptcy in 2005.

Judge Schmidt made the recommendation, which is not binding but widely expected to provide guidance, to Judge Andrew Hanen of U.S. District Court in Brownsville, Texas. Hanen is to make the final decision on which of two bidders can take control of Asarco.

At the center of the case are Asarco's copper mines in Arizona and $7.5 billion in damages related to a piece of Peruvian miner Southern Copper Corp that had been owned by Asarco.

Judge Hanen found in April that Grupo Mexico had made a "fraudulent transfer" of Asarco's "crown jewel" stake in Southern Copper in 2003 and ordered Grupo Mexico to return the stake along with a cash payment. Grupo Mexico is appealing.

If Grupo Mexico, which owns but does not control Asarco, wins the bid, that liability is extinguished. If Sterlite wins it would get receive the settlement. Sterlite's bid has the backing of most creditors, Asarco, and Asarco union workers.

The case is In re: Asarco LLC, U.S. Bankruptcy Court, Southern District of Texas, No. 05-21207.