At 0805 GMT, shares of BBVA, Spain's second-largest bank by market value, were up 1.5%, while those of fourth-largest Sabadell were down 1.7%.
Sabadell said Monday that its board believed BBVA's proposal significantly undervalued its growth potential and prospects. BBVA said it regretted the Sabadell board's decision, without giving any clues about its next move.
BBVA could now withdraw, raise its offer or launch a hostile takeover bid. A spokesman declined to comment.
Spanish broker Alantra said it did not expect BBVA to improve its offer or go hostile.
"We rule out BBVA turning hostile (...) given that management will destroy its track record of financial discipline and that around 50% of Sabadell shareholders are retail investors, who would largely follow the board's decision in any case," it said.
The broker also said it believed BBVA would not switch to a cash offer, as it was proposing a friendly merger and paying cash would be incompatible with that.
RBC Capital, however, said BBVA would probably have some room for maneuver on price and "Sabadell has probably not totally closed the door to future negotiations, although the two sides currently seem a long way from finding a middle ground."
Last week, BBVA proposed to offer one newly issued BBVA share for every 4.83 Sabadell shares, a 30% premium over Sabadell's closing price on April 29 and a valuation of about €12 billion ($12.9 billion).
Since then, Sabadell shares have risen about 8.8%, while BBVA shares have fallen 9.7%, reducing the value of the proposal to about €11 billion.
(1 US dollar = 0.9291 euros)
(Reporting by Jesús Aguado; additional reporting by Andrés González; editing by David Latona and Mark Potter; Spanish editing by Benjamín Mejías Valencia)
