RPT-UPDATE 5-CNOOC bid for Nexen raises tough issues, says Canada PM

* Canadian PM says CNOOC bid raises difficult issues

* Canada NDP says it fears "tidal wave" of foreign bids

* Government deciding whether to approve CNOOC bid for Nexen

* NDP cites lack of transparency in approval process

* Canada PM says U.S. pressure won't influence decision

(Repeats to add UPDATE 5 in headline)

By David Ljunggren and Randall Palmer

OTTAWA, Oct 4 (Reuters) - Canada admitted on Thursday that a Chinese bid for domestic oil company Nexen Inc raises difficult policy questions, but the government gave no sign it would bow to an opposition demand to veto the deal.

Speaking hours after the main opposition party demanded a veto on CNOOC Ltd's $15.1 billion bid, Prime Minister Stephen Harper sa id the government wo uld look at a range of issues as it determines whether the transaction, the largest foreign takeover ever launched by a Chinese firm, is of net benefit to Canada.

The deal has also raised rare public signs of unrest among Conservative legislators, some of whom fret about the idea of a Chinese state-owned enterprise buying Canadian energy assets.

"This particular transaction raises a range of difficult policy questions, difficult and forward-looking issues. Those things will all be taken into account," Harper told reporters in Ottawa, when asked about the bid.

Fund managers and market analysts say they expect Ottawa will ultimately approve the deal, but not before attaching a series of conditions.

These could include seeking guarantees on employment and investment, requiring that CNOOC p romise to follow Canadian laws and practices and demanding that a certain number of Canadians be appointed to the board of directors.

"Our position has been to be generally welcoming of foreign investment, but at the same time as you know we have approved many transactions, we have significantly modified some, and we have blocked some transactions," said Harper.

Canada, a leading energy exporter, has the world's third-largest proven oil reserves, most of them in the western province of Alberta.

The government is trying to balance concerns over the CNOOC bid with the energy patch's huge need for foreign investment. Ottawa says C$630 billion ($643 billion) in investment is needed over the next decade alone and much of it will have to come from outside Canada.

The Conservatives last blocked a deal in November 2010 when they shocked financial markets by preventing BHP Billiton Ltd

from buying fertilizer maker Potash Corp , which is based in the western province of Saskatchewan.

Fund managers and arbitragers say the memory of the Potash deal - which foundered over opposition from the Saskatchewan government and federal Conservative legislators from the province - means there remains an element of doubt over Nexen.

Nexen shareholders have already voted overwhelmingly to accept the bid and the Alberta government is in favor.

Harper says Ottawa will take public opinion into account before making a decision. Polls have shown most Canadians oppose China buying Nexen.

Asked about speculation the United States was putting pressure on Canada to scrap the deal, Harper replied: "The government of Canada will ta ke it s own decision irrespective of what the government of the United States does. We don't obviously follow their judgments in these matters."

CNOOC said on Sept. 5 that it had asked the U.S. government to review its bid for any national security concerns. About 10 percent of Nexen's assets are in the United States.

A handful of U.S. lawmakers have asked Treasury Secretary Timothy Geithner to review the deal with one urging Washington to block the deal in order to extract trade and investment concessions from the Chinese government. The U.S. has the power to require Nexen to divest its U.S. holdings, or impose other conditions in the event of a CNOOC acquisition.

Canada's main opposition party, the center-left New Democrats (NDP), demanded Harper block the bid, saying approval of the deal could trigger "a tidal wave" of foreign takeovers.

The NDP has no power to prevent the deal, but the party's comments reflect the political sensitivity of the affair.

NDP natural resources spokesman Peter Julian complained the criteria for determining "net benefit" - a rule that must be met for a foreign takeover to go ahead - was far too vague and excluded questions about jobs, human rights, national security and the environment.

Julian wants the government to hold public hearings on the bid. He cited what he said was the risk of "a number of other takeover deals that are pending. Some people have said it's a tidal wave of takeovers that are coming down the pike."

Industry Minister Christian Paradis, ultimately responsible for deciding whether to approve the CNOOC bid, said the NDP's actions were reckless and irresponsible.

The NDP said it could not support the deal as it was currently structured and demanded Ottawa be much more specific about what it expected from foreign investors.

"It's absolutely absurd that what we have is an industry minister with nebulous criteria, basically drawing up a response on a napkin," Julian charged.

($1=$0.98 Canadian)

(Additional reporting by Louise Egan; Editing by Janet Guttsman, Frank McGurty and editing by Carol Bishopric)

((david.ljunggren@thomsonreuters.com)(+1 613 235 6745)(fax +1 613 235 5890)(Reuters Messaging: david.ljunggren@thomsonreuters.com))