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Rio Tinto dropped 55p to 1865p today as the miner remained locked in talks with its biggest shareholder Aluminium Corporation of China (Chinalco) about a massive cash injection.
In return, Chinalco would increase its stake in Rio to between 15% and 20% and obtain a place on the main board.
Chinalco paid more than 6000p a share for its stake in Rio last year after it had received a takeover approach from rival BHP Billiton, down 42p at 1336p.
Deutsche Bank has raised its rating on the mining giant from hold to buy and lifted its target price from 1957p to 2518p.
The dramatic fall in the shares has highlighted the group's debt burden, which amounts to gearing to about 50%. Rio has committed itself to reducing debt by at least $10 billion (£6.7 billion) this year.
The rift in the boardroom about debt levels became apparent yesterday when chairman-elect Jim Leng quit the board. He has been opposed to any deal with Chinalco.
Morgan Stanley continues to rate BHP underweight but has cut its target from 1227p to 1175p. However, Goldman Sachs calls the shares a buy and says BHP is a long-term winner from mining-industry distress.
There was little for investors to cheer as they waited to see the small print of President Obama's $830 billion stimulus package. Shares generally appear to have run out of steam following last week's spike with the focus switching back to the troubled banking sector. The FTSE 100 index fell 41.31 to 4266.30.
Property stocks continued to make headway following the success of Hammerson's heavily discounted rights issue to raise £580 million. Hammerson put on 8p to 440¾p while British Land rose 7p to 508p after Goldman raised its target from 383p to 400p. Land Securities put on 10p at 720p.
There was also selective support for the two banks in the Government's golden circle with Lloyds Banking rising 2.5p to 103p, and Royal Bank of Scotland adding 0.1p at 24.9p.
British Airways stood out with a rise of 6.4p to 145.7p after Merrill Lynch added the shares to its European Conviction Buy list with a 250p target.
Investec has dropped drinks giant Diageo from buy to hold with a 950p target ahead of first-half results on Thursday. It continues to rate the producer of Smirnoff and Baileys as resilient and well-managed, but is nervous about the outlook for demand. The shares retreated 10p to 908p.
On AIM, shares of Fayrewood were suspended at 123½p pending an announcement. The company has recently applied to the courts for a approval for a capital reduction scheme. The first hearing takes place today.
Share prices in New York overnight appeared to lose much of the fizz that drove them sharply higher last week, despite approval for President Obama's economic stimulus package. The Dow closed 9.72 lower at 8270.87.
Bond yields climbed to their highest for several months ahead of the Treasury's proposed issue of $67 billion of bonds later this week. Regional banks won support. Regions Financial Corp was buoyed by a bullish broker's circular, and the shares rose 15%. Otherwise, financials had to cope with disappointing numbers from NYSE Euronext, which affected rival Nasdaq OMX.
Washing machines maker Whirlpool got its nose in front despite reporting a 76% drop in profits.
Tokyo shares erased earlier gains as the yen climbed against the euro amid growing uncertainty about the chances of success for the US bank rescue plan. Nissan surged more than 6% after announcing drastic steps to cope with the recession. It plans to cut 20,000 jobs, and joins a growing list of carmakers warning of losses this year. The Nikkei 225 ended down 23.09 at 7945.94.
Hong Kong shares flitted in and out of negative territory but the market eventually managed to extend to a fifth day a rally that began after Shanghai stocks took off on signs of a faster economic recovery in China.
The Hang Seng index finished up 111.58 at 13,880.64.
