Aluminum producer Reynolds Metals Co. yesterday rejected industry leader Alcoa Inc.'s $5.6 billion takeover offer of $65 a share in cash and stock.

Richmond-based Reynolds Metals, which made the decision at a special meeting of its board of directors, did not comment on a second takeover offer it received Friday from Michigan Avenue Partners, a Chicago-based investment firm. Details of Michigan Avenue's all-cash bid, which the Chicago firm said was higher that Alcoa's offer, were not disclosed.

Reynolds, the No. 3 aluminum company in North America, said in a statement that its board "unanimously determined that the consideration offered by Alcoa is inadequate for our shareholders." The company said its decision was based on, among other things, the opinion of its financial adviser, Merrill Lynch & Co.

Officials at Alcoa, which is based in Pittsburgh, could not be reached yesterday for a comment.

The chairman of Michigan Avenue, Michael W. Lynch, said he had anticipated such a decision by Reynolds Metals. "We are going to weigh our options," he said. "We are not going to let this pass."

Reynolds Metals' board seemed equally keen on cashing in on a new wave of consolidation that is sweeping through the industry. The board determined that it should, along with Merrill Lynch, "continue to explore all alternatives to maximize shareholder value, including the sale of the company."

With Reynolds Metals openly admitting it is up for sale, analysts expect another round of bidding to follow, with prices for its shares ranging from $68 to $75. Earlier last week, Alcan Aluminium Ltd. said it was not ruling out a takeover offer for Reynolds Metals.

Shares of Alcoa fell $1.25 on Friday, to $66.50. Reynolds Metals stock has gained more than 25 percent since Tuesday, when it closed at $55.87 1/2. It closed Friday at $69.37 1/2 a share.

On Wednesday, Alcoa had made its unsolicited offer to buy Reynolds Metals, along with its debt. The offer came within hours of Montreal-based competitor Alcan announcing plans for a three-way merger with Pechiney of France and Algroup of Switzerland. Such a transnational merger would displace Alcoa as the industry's top aluminum company.

Alcoa's bid, meanwhile, was followed Friday by Michigan Avenue's all-cash offer. Michigan Avenue is not a stranger to the aluminum industry, having acquired the Reynolds Metals production plant in McCook, Ill., in late 1997.

The aluminum industry worldwide is in a consolidation mood because of stagnant prices and weak demand. Consolidating capacities would enable companies to widen their product portfolio and reduce costs.