Rio falls after no higher bid emerges, Xstrata up

LONDON (Reuters) - Rio Tinto (RIO.L) shed nearly 8 percent on Monday after rival BHP Billiton (BLT.L) failed to make a higher bid as rumored while takeover talk helped Xstrata (XTA.L) buck a slide in the mining sector on weaker metals prices.

London-traded Rio shares were 8.9 percent down at 42.84 pounds, while the UK mining index .FTNMX1770 lost 7 percent and BHP fell 8.4 percent to 12.61 pounds.

Rio shares shot up 4.9 percent on Friday on talk that BHP (BHP.AX), 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 February 6 to make a formal offer for Rio (RIO.AX), or walk away under a deadline imposed by the UK Takeover Panel.

Rio's London shares were trading at a 13.5 percent premium to BHP's proposed share offer.

"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 February 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 (XTA.L) was more resilient than other miners, jumping as much as 5.1 percent on newspaper reports that Brazil's Vale (VALE5.SA) (RIO.N) was preparing to make a bid for the Anglo-Swiss firm and sinking 4.3 percent by 7:11 a.m. EST.

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 (AAL.L) falling 6 percent to 24.34 pounds, Vedanta (VED.L) down 7.5 percent to 15.99 pounds and Kazakhmys (KAZ.L) 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 MCU3 down 2.2 percent.

(Reporting by Eric Onstad; Editing by Louise Ireland)