Alcoa Inc., the world's largest aluminum company, said yesterday that it will mount a hostile bid for Reynolds Metals, one day after the Richmond-based company dismissed Alcoa's offer of $65 in cash and stock as inadequate.

Alcoa, however, did not revise its price for North America's third-largest aluminum company, even though the stock market has pushed Reynolds stock well beyond the $65 figure in anticipation of higher bids.

Yesterday, Reynolds stock closed at $68.93 3/4, down slightly since Friday but still up about 23 percent since Tuesday, a day before Alcoa first disclosed its $5.6 billion offer, including assumed debt.

"A fair price even in today's unfavorable market environment is around $72, and the top end of the range is $85," said Vahid Fathi, mining and metals analyst at ABN Amro Holding NV.

Reynolds urged shareholders not to budge. "Alcoa's actions are designed to serve Alcoa's own interest and not the interests of Reynolds Metals' shareholders," the company said in a statement.

Alcoa refused to comment on a possible price revision, although the market expects the company to boost its offer eventually. Because Reynolds did not reject a sale to Alcoa--it has only called the price "inadequate"--Wall Street believes a deal will finally take place, albeit at a higher price.

Reynolds's single largest shareholder--Boston-based Highfields Capital Management LP, which owns 6.7 percent of the outstanding shares--has been pressuring Reynolds to sell out.

A filing with the Securities and Exchange Commission shows that on Aug. 11--the day Alcoa made its offer--Highfields chief executive Richard L. Grubman wrote to Reynolds chief executive Jeremiah J. Sheehan stating that it was his "exclusive duty . . . to auction the company to the highest bidder, whether Alcoa or another company."

"A 'just say no' response and the status quo is not an option," Grubman said in the letter.

Meanwhile, Alcoa said it will go ahead and file documents with the SEC that would allow it to write directly to Reynolds shareholders.

Alcoa also is seeking to replace Reynolds's current board of directors with independent directors who would facilitate the company's sale.

At the same time, Alcoa has not ruled out a friendly, negotiated takeover. In a statement, Alcoa said that it still "prefers to negotiate a mutually agreeable merger."

A friendly takeover would help Alcoa avert a costly bidding war with other contenders, considering that Reynolds already has in hand an apparently higher, but undisclosed, all-cash offer from a Chicago-based investment firm, Michigan Avenue Partners.

Alcoa's Montreal-based rival, Alcan Aluminium Ltd., also has not ruled out joining the fray for Reynolds.

Alcan, however, has its plate full at the moment, having inked a $9.2 billion deal last week to acquire French rival Pechiney SA and the aluminum and packaging business of Switzerland-based Algroup.

Analysts say that with a potentially messy transnational merger on hand, Alcan is unlikely to dig its fingers into the Reynolds pie. But almost nobody is ruling out the possibility of Alcan springing a surprise bid.

The chairman of Michigan Avenue Partners, Michael W. Lynch, said last week in an interview that his firm would not make a hostile bid for Reynolds. "We are there to support Reynolds Metals," Lynch said.

While his firm's sources of funds for the proposed acquisition have not been disclosed, industry watchers caution against writing off Michigan Avenue. "There's a lot of leveraged money available out there which the firm could tap," an analyst said.

Even though Reynolds has more than $1 billion in debt, a leveraged buyout could still work. That's because, analysts believe, Reynolds's future cash flows are adequate to service the debt used in an LBO. "Based on my simulation runs, I think it is possible for Reynolds's cash flow to support [additional] debt," Fathi said.

That apart, Reynolds has been restructuring its businesses. In recent years, it has sold off many of its subsidiaries--including a McCook, Ill., plant to Michigan Avenue--to pay down debt and focus on its core business. It also has worked on reducing its operating costs.

More than ever, big aluminum companies are under pressure to buy out their smaller competitors because of weak market demand and stagnant prices.

In the case of Alcoa, it will lose its No. 1 position once the Alcan-Pechiney-Algroup merger takes place, creating a $21.6 billion colossus. But with Reynolds's $5.85 billion annual revenue and its own $15.3 billion revenue, Alcoa probably would remain No. 1.

But Alcoa's bid for Reynolds is likely to face an antitrust probe by federal authorities. In late 1997, Alcoa was forced to drop its offer to buy just one of Reynolds's plants after the Justice Department stepped in to block the deal.

Alcoa said it would file its pre-merger notification later this week. The company also said it believed the proposed merger was not anti-competitive, given the nature of the metals market and consolidation occurring elsewhere in the world.