UPDATE 1-Fortescue misses China funding date, talks continue

* Fortescue misses deadline for Chinese funding deal

* Talks continue, including on iron ore pricing

* Fortescue may provide price discount "if requested" (Adds background, details)

SYDNEY, Sept 30 - Fortescue Metals Group <FMG.AX>, Australia's third-largest iron ore miner, has missed a deadline on Wednesday to arrange financing with Chinese steel mills, raising doubt over a related deal on discount pricing of its ore.

Fortescue had agreed last month to sell the Chinese mills 20 million wet tonnes of iron ore at a 3 percent discount to rival miners provided China arranged $5.5-$6 billion in financing by Sept 30 to fund the firm's ambitious expansion plans.

Fortescue said in a one-paragraph statement that it would continue to work with Chinese steel maker Baosteel and the China Iron and Steel Association (CISA) on the plan.

But it left a question mark over the price discount, saying it would continue working cooperatively with CISA, including on the question of attractive iron ore pricing "if requested".

Fortescue did not elaborate. In announcing the deal on Aug. 17, it said the discount was dependent on securing the funds, but CISA suggested this week the funding was independent of pricing.

Industry analysts still expect Fortescue to conclude the deal on the original terms, but there is a risk the deal could fall apart the longer the talks drag on.

Chinese officials had hailed the Fortescue deal as a welcome compromise that might help break the deadlock in annual iron ore talks with Rio Tinto <RIO.AX>, BHP Billiton <BHP.AX> and Brazil's Vale <VALE5.SA>, hoping to prevent a complete breakdown in a four-decade-old negotiated pricing ritual.

Rio Tinto, BHP Billiton and Brazil's Vale have declined to meet Chinese steelmakers' initial demands for a 40 percent price cut this year and have instead held out for a smaller reduction of 33 percent agreed with other Asian mills.

Under the China funding deal, Fortescue had said it would sell its ore to China at closer to a 35 percent reduction to last year's price.