OKYO (MarketWatch) — Mining giant Rio Tinto said Friday that it’s decided to reject a $19.5 billion deal to sell part of itself to China’s Aluminium Corp. and announced the launch of a heavily discounted rights issue to raise about $15.2 billion in gross proceeds.

The deal with Aluminum Corp.(ACH 26.44, +0.24, +0.92%) , also known as Chinalco, would have ranked as the largest-ever foreign corporate investment by a Chinese company and could have effectively doubled Chinalco’s stake in Rio to about 18%.

"The Chinalco deal was a move of desperation at the worst of the market," said Brent Cook, author of investment letter Exploration Insights. "No one — shareholders, BHP or the government — liked it, and it may not have passed government scrutiny."

In a press release Friday, however, Rio Tinto said it sees "potential for future collaboration" with Chinalco.

"There are lots of Aussies in high political places who don’t want … land and resources sold to China," said Uwe Parpart, chief economist for Asia at Cantor Fitzgerald. "China is facing growing opposition to its resource-acquisition policy."

"How will China react?" he said. "I think the Aussies are shooting themselves in the foot, big time. This doesn’t make any business sense."

Trade in Rio stock was halted in Australia and New Zealand ahead of the announcement, but shares zoomed 12% higher once they resumed trading.

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