Davis's investment vehicle X2 Resources values Vale's nickel business at $5 billion to $7 billion, Bloomberg said, citing two people, who asked not to be identified because the negotiations are private. (http://bloom.bg/1wbhfuQ)

X2 has raised about $4.8 billion from equity investors including Asia's Noble Group Ltd, private equity fund TPG Capital and sovereign wealth and pension funds to create a mid-tier mining company and has been hunting for assets to buy from miners such as Vale, BHP Billiton Ltd and Anglo American Plc, Bloomberg said.

"We have not received any proposal or held any talks with X2 about our nickel assets," a Vale spokeswoman told Reuters. X2 Resources spokesman Michael Oke declined to comment on the Bloomberg report.

Vale, the world's second-largest producer of nickel, said in December it was considering an initial public offering of 30 to 40 percent of its base metals division by August, because the unit was undervalued by the market.

Chief Financial Officer Luciano Siani later told Reuters that a listing hinges on a 20 percent rally in nickel prices.

Siani said the unit could be worth $30 billion-$35 billion, if nickel prices touched $21,000 per tonne and copper $6,600 per tonne next year.

Since then benchmark nickel on the London Metal Exchange had fallen about 14 percent up to Tuesday's close of 14,650 per tonne.

Valuations for the division vary. Brazilian bank Itau valued the unit at $35 billion, while Morgan Stanley suggests $14.9 billion.

Vale's shares closed at $8.50 on the New York Stock Exchange. The stock had risen about 61 percent in 2014.

(This story removes extraneous word in first paragraph)

(Reporting by Sneha Banerjee and Avik Das in Bengaluru; Editing by Don Sebastian)