Rio Tinto Ltd/Plc , the world's second-largest miner, reported a 54 percent drop in first-half earnings on Thursday, its biggest half-year slump on record, as aluminum prices and demand collapsed.

The company, which has eased its debt woes with recent asset sales and a $15.2 billion share sale, said it remained cautious about a recent rally in metals prices.

Underlying January-June earnings fell to $2.565 billion from $5.526 billion a year ago, in line with analysts' forecasts for around $2.6 billion.

Rio's bottom line was hit by writedowns and a $195 million break fee paid to Chinalco for spurning the Chinese state-owned group's planned $19.5 billion tie-up in June. Rio instead launched a rights offer and lined up an iron ore joint venture with rival and former suitor BHP Billiton .

The key challenge for Rio Tinto is to resolve a stalemate with Chinese steel mills on price talks for iron ore, its biggest earner, amid tension with the Chinese government over the arrest of four Rio staff in Shanghai on suspicion of bribery.

(Reporting by Sonali Paul; Editing by Ian Geoghegan)