China Eastern on Monday snubbed an approach by bigger rival Air China's parent to buy a USD$2 billion stake, triggering the steepest daily loss in Air China's shares.

China Eastern said the proposal from China National Aviation Corporation (CNAC) to buy up to 30 percent of the carrier was incomplete and insincere.

The proposal came 10 days after China Eastern shareholders, led by CNAC, rejected a deal to sell 24 percent of China Eastern to Singapore Airlines and investment firm Temasek for USD$920 million.

Air China slumped more than 15 percent on Monday, more than twice the 7 percent drop on the index of Chinese firms listed in Hong Kong, even after the airline said it wasn't involved in any acquisition talks.

"People are selling Air China shares as it is still unclear whether the proposal will include any share swap or earnings dilution," said one fund manger, on condition of anonymity.

Investors also feared Air China might be roped in to help bankroll CNAC's attempt to buy into the loss-making and heavily indebted China Eastern.

CNAC, which owns 3.9 percent of China Eastern and had complained that Singapore Air was buying its China Eastern stake too cheaply, is trying to push through its proposal at a time of record oil prices and slumping markets, hammered by deepening fears of a US recession.

Reports that China raised jet fuel prices in the first quarter also helped dent aviation shares. Rival China Southern Airlines slid 9 percent on Monday.

Some analysts foresee Singapore Air, the world's most profitable airline, returning to the negotiation table, but others doubt it would engage in a bid war with Air China.

Singapore Airlines had hoped to gain access to a fast-growing travel market as increasingly wealthy Chinese take to the skies, but Air China, the world's most valuable carrier by market capitalization, fears the entry of a world-class rival, especially in Shanghai, where it has a lower profile.

"If Singapore Air refuses to improve its price, the chance of it winning a deal is next to nil," said Li Lei, aviation analyst with China Securities.

"Singapore Air is in a better position to extend China Eastern's global network and improve its governance. But the synergy as a result of an Air China-China Eastern tie-up is obvious as it would give them the power to set prices, especially on the domestic trunk routes," he added.

A Singapore Airlines spokesman said the company's position had not changed, and reiterated its offer was full and fair.

The collapse of the SIA deal, two years in the making and blessed by Chinese authorities, highlighted the increasing aggression of state-owned Chinese corporations that once typically bowed to Beijing's political will.

"It seems the odds are on Air China, as it came up with a better price that no one else is willing to match," said Ma Ying, an analyst with Haitong Securities, adding Air China's case may be bolstered by its ex-chairman Li Jiaxiang's move to the country's top aviation regulatory post.

"Li's promotion is also a big help for Air China as an alliance with China Eastern would create a Chinese super-carrier, as Li hopes."