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LONDON/BRUSSELS, June 13 (Reuters) Mittal Steel and Arcelor are on the verge of holding their first serious talks, as Mittal stepped up the pressure on its reluctant bid target by unveiling a plan to boost earnings 70 percent over 3 years.

One Arcelor source told Reuters he believed the talks, set to start later on Tuesday or on Wednesday, could lead to an improved offer from Mittal Steel which could be recommended by the Luxembourg-based firm.

"There is a possibility," the source said.

Lakshmi Mittal, the billionaire whose family owns 87 percent of Mittal Steel, also sounded upbeat about the talks.

"We have moved from a very negative involvement to a positive involvement today. We hope that this kind of dialogue can lead to a satisfactory conclusion for the shareholders of Arcelor as well as Mittal Steel," he told a news conference.

"We have always said we want to sit down with Arcelor management and we want a friendly transaction." Arcelor has spurned Mittal Steel, the world's biggest steel producer, for more than four months, and formally rejected a revised cash-and-shares offer, currently worth about 21.6 billion euros ($27.2 billion), on Monday.

It has recommended to investors an alternative deal with Russia's Severstal.

On Monday, however, Arcelor bowed to investor demands for a special vote which could derail a tie-up with Severstal, and said Mittal had indicated it could raise its offer.

Mittal Steel reiterated on Tuesday however, it had no plans to raise its offer, but has said it could make further unspecified improvements to corporate governance.

It also stepped up the pressure on Arcelor by making public a business plan it had given to its bid target last week.

PRESSURE Mittal Steel's business plan predicted its earnings before interest, tax, depreciation and amortisation (EBITDA) would rise to $9.9 billion in 2008, up from $5.8 billion in 2005, aided by strong demand for steel, as well as about 26,000 job cuts.

"This should put pressure on Arcelor which has been saying Mittal concentrates on volumes rather than margins. This business plans shows this is not the case and should comfort people in holding Mittal's shares," a trader said.

Mittal Steel's forecast does not include the potential deal with Arcelor, which Lakshmi Mittal said could deliver over $1 billion of savings and would not involve additional job losses.

The proposed tie-up was far superior to Arcelor's alternative deal with Severstal, added Aditya Mittal, chief financial officer and son of Lakshmi.

"We have a choice. We can create a step change in the steel industry or we can have the imposed defence (of Arcelor's proposed deal with Severstal)," he said.

Mittal Steel, which has led consolidation in the fragmented steel industry, is aiming to create a producer of more than 100 million tonnes of steel a year -- more than three times its closest rival -- by combining the sector's two biggest players.

"We are confident of our ability to close this transaction," Aditya Mittal said.

Another source close to Arcelor said the firm would enter talks with Mittal Steel with "an open mind".

"I think the game is really open," the source told Reuters.

EARNINGS Mittal Steel said its business plan was underpinned by market forecasts that demand for steel will continue to grow by 3.6 percent to 4.5 percent a year, offsetting its assumption steel prices will fall 1.75 percent in real terms annually.

The firm expects to add $500 million to EBITDA by 2008 by cutting energy use by 6 percent and forecast another $500 million boost from raised productivity.

Mittal also plans to cut about 26,000 jobs, or over 10 percent of its 224,000 workforce, by natural attrition.

Rabo Securities analyst Richard Brakenhoff said: "Their guidance for 2008 is clearly above my targets. This is not only driven by higher sales volumes but also as they are investing in trying to improve their product mix".

Mittal Steel said it expected to post EBITDA of around $7.3 billion this year, including a second-half contribution of between $4.2 billion and $4.4 billion.

Following Mittal's new forecasts, and applying Mittal's assumptions for selling prices, Arcelor said its own core earnings would rise to 8.9 billion euros in 2008, from a previously announced 7 billion euros.

Arcelor-Severstal's combined EBITDA would increase to 13.1 billion euros from a previously announced 10.3 billion.

At 1420 GMT, Mittal shares in Amsterdam were up 0.9 percent at 23.8 euros. Arcelor stock was down 1.3 percent at 32.9 euros.

REUTERS VJ ND2112