UPDATE 1-Alcoa paying $85 mln cash to settle with Bahrain's Alba

* Alcoa settlement also includes alumina supply contracts

* DoJ, SEC investigations continue

* Alcoa stock up slightly

(Adds details, quotes, stock move)

By Amena Bakr

DUBAI, Oct 9 (Reuters) - Alcoa Inc will pay $85million in cash and enter long-term raw material supplycontracts with Aluminum Bahrain (Alba) to settle theBahraini firm's racketeering and fraud lawsuit against Alcoa,the companies said on Tuesday.

Alba had accused Alcoa in U.S. federal court of conspiringwith a businessman to orchestrate bribes in Bahrain and toovercharge it for alumina, the crucial material used to makealuminum. Alba had sought damages in excess of $1 billion.

Alcoa admitted no liability in the settlement but stillfaces investigations by the U.S. Justice Department and theSecurities Exchange Commission into the allegations.

Shares of Alcoa, which was due to issue its third-quarterfinancial results later on Tuesday, were three cents higher inearly afternoon trading at $9.15 on the New York Stock Exchange.

Alba put the value of the contracts at $362 million. Alcoadeclined to give a value, but said it expects them to beprofitable.

"We are very happy with this settlement, this is great newsfor Alba and Bahrain," Alba Chairman Mahmood Hashim al-Kooheji,who is also chief executive of Bahrain's sovereign wealth fundMumtalakat, said in an interview from Manama.

In a news release, Alcoa confirmed it had resolved the civillawsuit with Alba that had been pending in the U.S. DistrictCourt for the Western District of Pennsylvania since 2008.

Alcoa agreed to make the cash payment to Alba of $85 millionin two installments. The settlement amount is within the rangeAlcoa previously estimated as its reasonably possible losses, itsaid.

It said the settlement with Alba "represents the bestpossible outcome and avoids the time and expense of complexlitigation."

Based on the settlement, Alcoa recorded a $40 million chargein the third quarter in addition to the $45 million charge itrecorded in the second quarter.

Alcoa said it estimated an additional possible after-taxcharge of $25-30 million to reflect an agreement between theshareholders of Alcoa World Alumina LLC regarding the cash costsof the settlement. Such a charge would be recognized in theevent that a settlement is reached with the Department ofJustice and the SEC on ongoing investigations.

Alba's Kooheji said the alumina supplies will be delivered"as per our requirements ... I would say it's around six toseven years of supply."

Alba, the fourth largest aluminum smelter in the world, is69-percent owned by Mumtalakat. Saudi Arabia holds another 20percent.

Alba's total losses from the alleged fraud were estimated tobe around $400 million. Aside from Tuesday's settlement, Albahad managed to recover $31 million from European companies.

Kooheji said the settlement would be "positive" for Alba'sresults and expected pending cases against other firms to beconcluded following the Alcoa agreement.

Alba's lawsuit against businessman Victor Dahdaleh continuesin the United States.

Alcoa supplied the alumina from its Australian unit to aSingapore-based company controlled by Dahdaleh, a Canadiancitizen who lives in Britain and who, according to the lawsuit,facilitated the bribes that caused Alba to overpay for thematerial, starting in 1993.

Dahdaleh, a former donor to Britain's Labour party andformer U.S. president Bill Clinton's charitable activities, isfacing corruption charges in Britain linked to the Bahrain case.A provisional trial is scheduled for next April.

Alba also filed a suit in December 2009 against the Japanesetrading company Sojitz Corp in U.S. District Court inHouston in connection with bribery allegations linked to thesale price for finished aluminum sold by Alba.

Alba's Kooheji said on Tuesday the Bahraini firm wouldmaintain a "good" commercial relationship with Alcoa.

(Additional reporting by Steve James in New York; Writing byAmran Abocar; Editing by Tim Dobbyn)

((amran.abocar@thomsonreuters.com)(+971 4 453 6467)(ReutersMessaging: amran.abocar@thomsonreuters.com))