Key Points:

Rio Tinto Group, fending off a proposed US$130 billion bid from rival mining company BHP Billiton, fell further than it has in at least 19 years in London trading after BHP failed to make an improved offer.

Investors predicted last week that Melbourne-based BHP, the world's largest mining company, would offer more shares and add cash to its offer.

The Wall Street Journal reported yesterday that BHP Billiton is unlikely to increase its proposal to acquire Rio Tinto by the February 6 deadline, which was set by the British Takeover Panel for the Australian company to formalise its offer.

Rio fell 10 per cent on the London stock exchange, erasing a 4.9 per cent advance on January 18.

"The fall in Rio is not unexpected considering the market is down and after the massive turnaround on Friday and no bid eventuating," said Kylie Macdonald, an investment adviser with ABN Amro Morgans in Sydney.

BHP in November offered three shares for every share of London-based Rio, which rejected the approach.

Rio dropped 472p to 4228p at the close in London overnight Monday. That is the biggest daily decline since at least September 12, 1988, according to Bloomberg data.

The FTSE 100 Index of British shares slumped 5.5 per cent. Rio's Australian shares were down more than A$11 in trading yesterday.

Samantha Evans, a BHP spokeswoman in Melbourne, and Rio spokeswoman Amanda Buckley declined to comment.

Advisers to BHP spoke to the Takeover Panel and Australia's corporate regulator last week to discuss technical issues relating to Rio's tax structure and dual listing, Britain's Times newspaper said.

"I don't think the fall indicates the bid is off as there is still a 14 per cent premium built in based on the current offer," said Gavin Van Der Wath, an analyst at BBY Ltd in Sydney.

"When BHP falls, so does Rio and the market is having a significant impact on both shares."

BHP dropped 143p, or 10 per cent, to 1235p in London, the biggest daily decline since February 22, 2000.

Rio says the deal undervalues its mines and growth prospects, and has refused to engage in talks.

BHP says the merged company would control a third of the world's iron-ore market and more coal, copper and aluminium than any of its rivals. Profits from its Western Australian iron-ore operations increased by 13 per cent last year, BHP said.

The company reports second-quarter production on January 23.

- Bloomberg