June 17 (Bloomberg) -- The cost of protecting debt sold by BHP Billiton Ltd. rose the most in almost eight months on concern the world’s largest mining company may be planning an acquisition.

Credit-default swaps on Melbourne-based BHP climbed 17.5 basis points to 123.5 today, the biggest gain since Oct. 22, according to CMA Datavision prices in London.

BHP Chief Executive Officer Marius Kloppers, fresh from negotiating a $5.8 billion iron ore venture with rival Rio Tinto Group, needs a much bigger deal to satisfy investor demand for growth, shareholders including Alleron Investment Ltd. and SG Asset Management Pte. said last week. Woodside Petroleum Ltd. may be a target, Southern Cross Equities Ltd. said last month.

“There is a bit of talk around of them doing a large deal elsewhere,” said Michael Bush, head of credit research at National Australia Bank Ltd. in Melbourne. “If it stays at these sort of levels it would suggest to me that people may take a position ahead of an anticipated deal.”

Shares of BHP, Australia’s biggest oil and gas producer, declined 55 pence, or 3.9 percent, to 1,375 pence at the close in London. The benchmark FTSE 100 index fell 1.2 percent. The shares traded in Sydney dropped 2.2 percent.

Bronwyn Wilkinson, a BHP spokeswoman in London, declined to comment.

‘Too Risky’

The company abandoned a hostile $66 billion takeover bid for Rio in November after regulatory hurdles, debt concerns and falling commodity prices made it too risky. The venture with Rio is BHP’s biggest single investment since its 2005 acquisition of WMC Resources Ltd. for A$9.2 billion ($7.4 billion).

“There is pressure on them for another acquisition, there is pressure on Marius,” Chris Weston, an institutional dealer at IG Markets in Melbourne, said today by phone. Woodside, Australia’s second-largest oil and gas producer, was the “obvious” target for BHP, he said. Anglo American Plc and Xstrata Plc could also be possible targets he said. Woodside’s shares were little changed.

If “markets start rebounding aggressively, he will be under pressure that he didn’t have a better acquisition,” Weston said. BHP may be able to spend as much as $40 billion on any future acquisition, Merrill Lynch & Co. said this month.

BHP wasn’t concerned about any merger of Xstrata and Anglo, Morgan Stanley analysts led by Craig Campbell said yesterday in a report, citing Kloppers after a meeting with analysts in Sydney. Anglo shareholders want Chief Executive Officer Cynthia Carroll to consider a merger with Xstrata, the Times Online reported this week.

Seeking Approval

BHP and Rio may be required to sell assets to win approval for the venture from regulators including the European Union, Rio said in a document for its $15.2 billion share sale to shareholders that was lodged yesterday with the exchange. Rio’s credit-default swaps rose 9.3 percent yesterday.

Credit-default swaps, contracts conceived to protect bondholders against default, pay the buyer face value in exchange for the underlying securities or the cash equivalent should a country or company fail to adhere to its debt agreements. An increase indicates deterioration in the perception of credit quality; a decline, the opposite.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. A basis point is 0.01 percentage point.

To contact the reporter on this story: Rebecca Keenan in Melbourne at rkeenan5@bloomberg.net

Last Updated: June 17, 2009 11:55 EDT