Rio Tinto shares shed 10 percent on Monday after rival BHP Billiton failed to make a higher bid as rumored while takeover talk helped Xstrata buck a slide in the mining sector on weaker metals prices.
Rio shares shot up 4.9 percent on Friday on talk that BHP, the world's biggest mining group, would lift its proposed offer for Rio to 3.58 of its shares plus A$16.50.
BHP, which proposed a three-for-one share swap last November, has until Feb. 6 to make a formal offer for Rio, or walk away under a deadline imposed by the UK Takeover Panel.
"There's no need for BHP to do anything now," said a hedge fund manager in London who owns stakes in both BHP and Rio.
BHP is likely to reveal its decision on whether it will post its proposed bid for Rio on Feb. 6 when it posts annual results, he added.
Rio has rejected BHP's 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.
BHP Chief Executive Marius Kloppers has argued that a tie-up of the two firms would generate $3.7 billion in synergy benefits after seven years and has pledged to buy back $30 billion in shares if the deal goes through.
Xstrata Bucks Trend
Mining group Xstrata was more resilient than other miners, jumping as much as 5.1 percent on newspaper reports that Brazil's Vale was preparing to make a bid for the Anglo-Swiss firm and sinking 4.3 percent.
Xstrata, which soared 8.6 percent on Friday on takeover speculation, later pared gains to trade 0.3 percent weaker at 33.53 pounds, still outperforming the sector.
Brazilian newspapers Valor Economico and O Estado de Sao Paulo, citing sources close to Vale, said the miner was in advanced talks with a consortium of banks to obtain financing for the deal, which would mark the biggest takeover ever by the Brazilian company.
Both Xstrata and Vale, which until recently was known by the acronym CVRD, declined to comment on the reports.
In December, Xstrata confirmed it had held initial talks about a possible takeover after a wave of rumors, but it said no proposals had resulted from the discussions.
A tumble in metals prices hit shares of other mining groups, with Anglo American falling 6 percent to 24.34 pounds, Vedanta down 7.5 percent to 15.99 pounds and Kazakhmys off 8.2 percent to 10.60 pounds.
Fears of a U.S. recession, falling equities markets and the dollar's rise against the euro pushed industrial metals lower on Monday, with copper down 2.2 percent.