Qatar's 7 per cent stake in Xstrata, makes it not only the miner's largest investor after Glencore, but also a potential kingmaker in the two companies' merger and an unknown quantity for its future that investors are desperate to read.

The reclusive sovereign wealth fund has been steadily buying Xstrata shares, spending some $2.7 billion to lift its holding from below 3 percent at the start of February, when the tie-up with commodities trader Glencore was announced.

It has bought virtually every day this month, a crucial period of courting for miner Xstrata and commodities trader Glencore, as the two jointly toured key investment funds.

Qatar has so far made no comment on its intentions, unnerving some investors who fear the Gulf state may force through Glencore's current offer that they argue undervalues Xstrata's growth. Others are concerned for the future, wondering whether secretive Qatar, which could hold almost 5 percent at current levels, will want to play a role in the company's development.

'They have shown in the past they can make big bets,' said one source involved in the deal.

'The Emiratis have invested in Glencore, so (the Qataris) have obviously chosen Xstrata to be their vehicle, and they are certainly putting their money behind it,' the source said, referring to Abu Dhabi's sovereign fund Aabar becoming the leading cornerstone investor in Glencore's initial public offering last year. It remains a holder of 1.4 percent.

'From my perspective this is, net net, a positive thing. They like the Xstrata story,' the source said.

Sources involved in the merger and those familiar with Qatar expect the fund to ultimately back the $37 billion takeover of Xstrata by Glencore, which is offering 2.8 shares for every Xstrata share held.

Other sources say Qatar will be a long-term shareholder which, unlike other sovereign wealth funds in the oil-rich Gulf, is betting on commodities and that Xstrata simply provided an entry point in soft market conditions.

Qatar could seek improved terms from Glencore - Qatar Investment Authority's holding could give it a blocking position for the merger.

The structure of the deal, which requires at least 75 percent of shareholders excluding Glencore to approve it, means the opposition of investors representing just over 16.5 percent of Xstrata's total shareholding would be enough to derail it.

Major funds Standard Life, Schroders and Fidelity, who together own 4.8 percent, have said they could reject the current offer. There is also the potential unknown of U.S. activist investor Knight Vinke, who owns a 0.5 percent share.

Qatar could add significant weight and momentum. Most, however, doubt QIA is preparing for a fight - not least because a spat could damage its future options for investing.

'They (Qatar) are moving with a deal already on the table, so it is logical to assume that they want to be part of it,' said analyst Nik Stanojevic at stockbroker Brewin Dolphin.

'If somebody builds up this kind of stake it would surprise me if they were against the deal, unless they are an activist investor, which QIA is not.'

Indeed, hopes of a significant boost to the ratio being offered by Glencore have faded in recent weeks despite Qatar's buying, as Glencore told some investors it would walk away rather than over pay. Xstrata shares are trading at less than 2.8 times Glencore's paper.

'It is not usual for the Qataris to vote down mergers or take an activist role. If they do that in the case of Xstrata-Glencore, that will be sending a very strong message to the global investment community,' a source familiar with QIA said.

'They are clearly seeing value in Xstrata shares post merger and a possible belief that the terms may be altered higher. They may be vying for it but I don't think it will end up becoming a public spat.'

Qatar, for its part, has yet to show its hand - both on the merger or on any vision it has for the company in which it could own a stake of 4.7 percent at current levels, including options.

Several sources said they were not aware of any meeting between Doha and the top Glencore or Xstrata managements since the merger was announced in February.

In a rare public comment, Hussain al-Abdulla, QIA's executive board member, said on Sunday it had more than $30 billion to spend this year and saw commodities as a key target. He did not comment on Xstrata.

'We should always be active. To be passive is not healthy. Our intention will always be to add as much value as possible and to improve the company we invest in,' QIA Chief Executive Ahmed al-Sayed told a conference in Doha earlier this week.

Contrary to many sovereign funds which invest passively, Qatar is active in choosing its investments and has shown it can take a role in businesses it sees as strategic.

It has board seats at carmaker Volkswagen, Credit Suisse, construction group Vinci, and it could seek to leverage its investment in Xstrata, on which it has lavished some $4 billion, based on the average price since Feb. 2.

It also has a clear appetite for more mining assets, having invested in European Goldfields last year through a funding deal, before the miner was bought by a Canadian rival, and has held talks to set up a $10 billion gold fund.-Reuters