Rio Tinto dropped as much as 5 percent, tracking its London shares lower, on growing speculation the global miner is set to launch a rights issue instead of selling $19.5 billion in stock and assets to China's Chinalco aluminum group.

On its Web site, Britain's Telegraph newspaper, citing a recent Citigroup report, said that given the avalanche of rights issues in recent weeks...the market's appetite for them and the fact that Rio's price is over the convertible strike price, calls for a rights issue for Rio should gain momentum.

Rio was 4.6 percent lower at A$65.33 at 11:08 p.m. EST, outpacing losses in close rival BHP Billiton and the wider market <.AXJO>

Rio Tinto has drawn up a plan B' if the Chinalco deal, aimed at helping it pay off billions of dollars in debts and ride out the commodities down cycle, is blocked by regulators or shareholders.

Investors have been speculating Rio might have to revise the deal since its shares in April climbed above the $45 conversion price on the first of two tranches of convertible notes that would be issued to Chinalco under the deal.

Australian politicians have also voiced concern about selling part of the company to a Chinese state-owned entity, with some even running a television advertisement against the idea.

(Reporting by James Regan; Editing by James Thornhill)

United kingdom China