Brazilian mining firm Vale SA (VALE) has dropped plans to make a bid for Mosaic Co. (MOS), ceding to government pressure, according to an industry source, the local Estado newswire reported Thursday.

At a time when Vale is reducing investments at home and sacking 2,000 employees, government officials frowned upon the possible $25 billion bid for the potassium miner and phosphate producer, which effectively scuppered the plan.

Vale declined to comment on the report.

The government doesn't control Vale, but the government-run BNDES development bank is part of the controlling group, as is Previ, the employee pension fund of state-controlled Banco do Brasil SA (BBAS3.BR), over which it has great influence.

Reports of Vale's interest in Mosaic, which is controlled by Cargill Inc. and IMC Global Inc. (IGL), were published in July after Vale Chief Executive Roger Agnelli said the company was looking to develop its potassium-mining business to provide for Brazilian agriculture's large and growing appetite for fertilizers.

Vale is the world's largest iron ore producer, while Mosaic is the largest phosphates producer and one of the largest potassium-mining companies.

-By Alastair Stewart; Dow Jones Newswires; 5511 2847-4520; alastair.stewart@dowjones.com