** Shares of Australian rare-earths miner Iluka Resources ILU.AX fall as much as 2.4% to A$5.05

** Co faces escalating costs and funding challenges for its Eneabba rare earths refinery in Western Australia

** Australia to grant an additional A$400 mln ($255.44 mln) loan to develop its Eneabba rare earths refinery

** Analysts at Citi cut ILU's price target to A$6.10 from A$7.00, maintain "buy" rating

** Citi says update provides more clarity, but uncertainties remain, requiring additional government loans and company investment

** Australian government's increased funding shows commitment, but project profitability is still questionable based on Citi's rare earth price forecasts - brokerage

** Stock down 25.3% this year, as of last close

($1 = 1.5659 Australian dollars)

(Reporting by Roushni Nair in Bengaluru)

((Roushni.Nair@thomsonreuters.com;))