Rio Tinto has rejected an unsolicited three-for-one scrip offer from the world's biggest miner, saying it significantly undervalues its assets.

But BHP Billiton has said it still hopes the Anglo-Australian group will warm to its advances and it believes the takeover is in the interests of shareholders of both companies.

Fang Xiaodong, senior manager of strategy and planning at Baosteel, told Australia's ABC radio that Prime Minister Kevin Rudd's government should act. "I think the Australian government should take some anti-monopoly action to prevent the merger of BHP and Rio because this kind of behavior will damage free competition," Fang said from Beijing.

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Tom Albanese, the chief executive of Rio Tinto which is the world's third- largest mining group, has described the BHP proposal as "dead in the water" but speculation has continued about the possibility of a merger.

Baosteel has denied media reports that it was considering bidding for Rio Tinto itself, saying it was merely "studying" the BHP Billiton offer.

But it noted the sensitivities involved if BHP Billiton was to combine with Rio Tinto to become the dominant player in iron ore production.

"Baosteel believes the launching of BHP Billiton's plan to buy Rio Tinto is likely to have huge implications for the world's steel and non-ferrous metal industries," the company said in a statement. "Due to this Baosteel is watching this closely and will continue to watch and comment on this matter as it develops." AGENCE FRANCE-PRESSE