Shares in Rio Tinto retreated as much as 4% on Thursday, a day after surging to a record on
speculation BHP Billiton may make a $100 billion-plus takeover bid.
Rio Tintowas down lower in the afternoon trading session in Australia. BHP was also down.
"I think it's normal market reaction. It was just one of those market rumors that can run hot and cold. Who knows if it is true or not," said Greg Goodsell, equity strategist at ABN AMRO.
Rio Tinto's Australian-listed shares reached a record high of A$99.69 on Wednesday on speculation BHP Billiton was considering offering A$110 per Rio Tinto share.
Rio Tinto said it was not aware of any approach from BHP.
Based on the Sydney closes and latest London prices, the combined market value of BHP and Rio is about $250 billion, which would make it the world's fifth largest company behind Exxon , General Electric (parent company of CNBC), Microsoft and Citigroup .
Analysts said a marriage still made sense given synergies in iron ore, copper and uranium mining, but questioned the likelihood of BHP launching a hostile offer at this time given BHP's focus on internal growth.
"It's difficult to see BHP making a big strategic decision from an operational view given the stage of the market and the kind of expansion projects they've got on," Commonwealth Securities mining analyst Martin Petch said.
BHP has earmarked $17.5 billion for 29 new projects either in development or in blueprint stages.
Still, a push to grow through acquisitions to gain a tighter hold on the worldwide boom in commodities would also be tempting to BHP, which by its own admittance is struggling to keep pace with demand.
"This speculation highlights clearly to us the deep value in Rio Tinto and also the sector which has significantly de-rated over the past four years," Credit Suisse said in a report. "Whatever the outcome of this speculation, it is good news for both Rio Tinto and the sector."
A union would assemble a force in iron ore mining -- each digs millions of tons of ore annually from neighboring lodes in far western Australia -- to rival the top producer, Brazil's CVRD.
In copper mining, the enlarged company would approach Codelco of Chile, which mines around 1.3 million tons of copper in concentrate per year, although the combined entity would lag the Chilean producer in refined output.
Desperate to cash in on near-record copper prices, BHP intends to restart its long-idled Pinto Valley copper mine in Arizona, a high-cost mine that was part of a disastrous acquisition of Magma Copper in the mid-1990s that almost left the company in bankruptcy.
"In this market, anyone that has something to mine is mining it," BNP Paribas analyst David Thurtell said.
Trading in Rio Tinto stock on Thursday was in sharp contrast to Wednesday, when talk swept Australian, then London markets, that BHP was readying a run on its close rival, despite Rio Tinto issuing a statement denying there had been an approach.
However, Rio's share price is still up more than 11% on its close last Thursday, before speculation of a tie-up with BHP first emerged. Volume was brisk with nearly three million shares changing hands in morning trade.