Shares in Rio Tinto plunged more than 36 per cent this morning after rival BHP Billiton scrapped its $66 billion hostile bid for the mining giant.

In contrast, BHP Billiton's shares rose 6.6 per cent, up 65p, to £10.45 today after it announced to the Australian stock exchange that it no longer believes the deal is in the best interests of its shareholders due to the global financial crisis and falling commodity prices.

Marius Kloppers, chief executive of BHP, said “recent global events and associated falls in commodity prices have altered risk dimensions.”

Mr Kloppers added the combined group's greater debt exposure as well as the difficulty in selling assets - a move expected to be enforced under European competition rules - increased risks to shareholders to an “unacceptable level.”

BHP, which first approached Rio over a year ago, said that in normal economic conditions it would have gone ahead but that economic circumstances would contribute to costs and risks. Rio's shares fell more than 36 per cent, down 896p to £15.54.

Speculation of BHP's interest in Rio surfaced in September last year, when Rio's shares were worth £37.16, they then surged to £52.96 on November 8 after BHP confirmed it had approached its rival regarding a deal worth more than $140 million at the time, with Rio's shares peaking at £70.78 on May 19 before BHP formally filed its bid with the European Commission for clearance on May 30.

Don Argus, chairman of BHP, said: "While we have not changed our view of the basic industrial logic of the combination, or of the longer term prospects for natural resource demand growth driven by emerging economies,

“We have concerns about the continued deterioration of near term global economic conditions, the lack of any certainty as to the time it will take for conditions to improve and the risks that these issues imply for shareholder value.“

The miner also highlighted that the LME copper cash price fell 23 per cent in the month to November 21, having already dropped 43 per cent in the year to October 21.

The deal, under which BHP offered 3.4 of its own shares for each Rio share, had already received clearance from competition authorities in the US and Australia.

However, BHP said it understood that the European Commission would require it to sell iron ore and metallurgical coal assets, for which it does not believe it will be able to get a fair price given the current economic climate. Despite BHP walking away from the deal the European Commission is likely to continue its formal review process until early to mid January. Even if BHP gets approval for the deal without making concessions it will not proceed.

BHP is also concerned about its ability to service and repay the combined group's debt against the background of difficult economic conditions.

BHP will write off costs of $450 million associated with the bid over the last 18 months in its December half year results.

Rio Tinto, which has insisted throughout that the terms of the deal undervalue its assets, acknowledged BHP's decision but declined to comment further at this stage.

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