* Approval of Mongolian project expected within days

* Shares rise 11 pct in Toronto, New York (In U.S. dollars unless noted)

TORONTO, July 7 (Reuters) - Shares of Ivanhoe Mines Ltd (IVN.TO) (IVN.N) rose more than 10 percent on Tuesday, on continued speculation that the Mongolian government is likely to approve the company's flagship Oyu Tolgoi copper-gold project in the next few days.

The Canadian exploration company's fortunes are greatly dependent on the success of the Mongolian project and the financial strength of its partner, Rio Tinto, (RIO.AX) (RIO.L) which owns about 10 percent of Ivanhoe. Rio could boost that stake eventually to above 40 percent by meeting funding commitments for Oyu Tolgoi.

Ivanhoe's shares jumped last week soon after Rio Tinto said the bulk of its $15.2 billion rights issue had been successfully completed, this will help cover its immediate debt servicing needs and free up capital to invest in projects like Oyu Tolgoi.

Rio has been struggling to pay down billions in debt from its 2007 acquisition of Canadian aluminum producer Alcan.

Ivanhoe and Rio have been waiting for Mongolia's parliament to vote on a draft investment agreement reached in March that could allow the project to go ahead.

Under the deal -- which revives a similar agreement that fell apart early last year -- Mongolia would take a 34 percent stake in Oyu Tolgoi, which is expected to produce an average of at least 440,000 tonnes of copper and 320,000 ounces of gold over a 35-year mine life.

According to recent media reports, the two main political groups in Mongolia's coalition government have met and agreed to proceed with the prevailing Oyu Tolgoi draft agreement.

Activity in Ivanhoe's call options, which give investors the privilege to buy the miner's shares at a fixed price within a specified time period, was aggressive on Tuesday.

About 24,000 calls traded, eight times the typical daily average over the past 30 days, according to Web information site optionMonster.com in Chicago. In all, only 9,800 puts changed hands.

"The vast majority of the calls were bought on the offer, suggesting that traders were betting that Ivanhoe would benefit by getting approval for its flagship copper-gold deposit in Mongolia," said Jon Najarian, a founder of optionMonster.

"Most notably, investors were buying 13,000 July $10 calls despite the fact that those contracts are 19 percent out-of-the-money from the current share price."

Media reports indicate that Mongolia's parliament might arrive at a decision before its current session recesses later this week.

Ivanhoe shares, which have risen about 50 percent this month, closed 95 Canadian cents higher at C$9.56 on the Toronto Stock Exchange. On the New York Stock Exchange the stock mirrored the 11 percent gain, closing at $8.28. (Reporting by Euan Rocha; editing by Rob Wilson)