BHP's takeover of Rio Tinto would have created a global mining superpower [Reuters]

Global mining giant BHP Billiton has said it is abandoning a controversial hostile takeover bid for rival Rio Tinto due to the state of the global economy.

Announcing the decision on Tuesday, Marius Kloppers, BHP's chief executive, said the current economic conditions had "increased the risks to shareholder value to an unacceptable level".

The takeover would have been worth about $66bn.

The news comes amid a slowdown in demand from emerging economies like China, whose booming economy had until recently fuelled a worldwide surge in the price of minerals such as iron ore.

But with China itself feeling the squeeze from the global financial crisis and its factories slowing production, miners have also seen demand plummet.

Earlier this month Rio Tinto slashed output at its western Australian plants by 10 per cent to bring production in line with falling demand.

And in the past few days BHP, the world's largest mining company, said it would reduce iron ore pellet production at the Samarco iron ore interest in Brazil, in which it owns a 50 percent stake, again as a result of weak demand.

BHP's takeover bid, which would have created a global mining behemoth, had raised concerns from steelmakers that the new company would have too much control over commodity prices.

Rio Tinto itself had repeatedly rejected the offer, saying it vastly undervalued the Anglo-Australian group, whose major products include aluminium, copper, diamonds, gold and iron ore.

In February BHP increased its to offer to 3.4 of its own shares for every Rio Tinto share, effectively valuing Rio, the world's third-biggest miner, at $147.4bn at the time the offer was made.

It had initially offered three BHP shares for every one Rio Tinto share.

The takeover bid had already been passed by Australian and US competition regulators, and was awaiting a ruling from the European Union's antitrust regulator.