Speculation swirled on Friday that BHP Billiton was readying a sweetened offer that includes cash for rival Rio Tinto, driving Rio's shares 4.6 percent higher.
The stock rise, in an otherwise down day on the Australian bourse, came as investors reacted to talk that BHP would lift its offer to 3.58 of its shares, plus A$16.50 for Rio Tinto.
Analysts said a general decline in equity markets, which has seen Rio tumble from a peak of A$146.90 on Dec. 3 to as low as A$109.24 on Friday before buying kicked in, could be partly why BHP may have sweetened its offer.
"It sounds about right... Now's the time to do it, with stock prices down, so there has to be a bit of legs in that," said DJ Carmichael mining analyst James Wilson.
Hedge funds were buying Rio and selling BHP, Wilson said.
BHP has until Feb. 6 to make a formal offer for Rio, or walk away under a deadline imposed by the UK Takeover Panel. BHP's Australian stock dropped by about 5 percent to A$34.80.
Neither BHP or Rio would comment.
BHP Chief Executive Marius Kloppers has argued that a marriage with Rio would streamline mining operations at a time of high demand for raw materials, and would assemble a more efficient supply chain to customers.
Rio has rejected the three-for-one share-swap proposal, worth some $139 billion when announced in November, saying it is happy to ride the boom in mineral commodities on its own.