The Brazilian mining giant Vale do Rio Doce has confirmed it has held preliminary takeover talks with the Anglo-Swiss company Xstrata, which analysts said could lead to a deal worth more than £50bn.
But Vale, the world's leading iron ore producer and exporter, said launching an offer would require the right market conditions and warned the current economic climate could prevent it from going ahead.
A deal between Vale and Xstrata would be the latest in a wave of companies from emerging economies snapping up rivals in Europe and the United States.
Rodrigo Ferraz, a mining analyst at Banco Brascan, in Rio de Janeiro, said: "Everything indicates the bid may indeed happen, but it isn't a trivial task for Vale. It's almost an entire company's worth they'd be putting in it."
The mining company said: "Vale considers that the current conditions prevailing in the global financial markets may constrain the realisation of a major strategic move."
Shares in Xstrata, which has been the subject of takeover speculation for months, rose earlier in the day in London, but later dropped to close the day 5 per cent down, as copper and nickel prices fell and fears of an economic slowdown caused global markets to go into freefall.
"In an environment of a global consolidation of the mining industry, Vale has been maintaining a dialogue with Xstrata Plc management," Vale added. It also said it had been exploring with banks "several ways to support its growth initiatives in the event it decides to effectively pursue one of the above-mentioned options".
Vale did not comment on rep-orts in Brazilian newspapers that it is in talks with Xstrata's biggest shareholder, the commodities trader Glencore, about a plan to offer it up to $30bn (£15bn) in voting shares as part of the payment.
In December, Xstrata confirmed that it held initial talks about a possible takeover but said no proposals were made.