Morgan Stanley was bidding for 60 million shares at around A$4.90 a share on an all-or-nothing basis, meaning if the full order was not met, no shares would be bought.

Fortescue shares closed on Monday at A$4.85. One dealer said a special trade for 1 million shares was put through at A$4.92 on Tuesday morning, but that was not part of the bundle Morgan Stanley was seeking.

A spokeswoman for Fortescue declined comment as did a spokesman for Morgan Stanley.

Separately Forrest, who owns 31.6 percent in Fortescue according to Thomson Reuters data, disclosed in a filing that he had picked up 12.78 million shares in the open market between June 20 and June 25.

Fortescue, valued by the market at A$15.1 billion, fell 0.5 percent to $4.825 by 0102 GMT. The broader market was down 0.3 percent.

($1 = 1.0015 Australian dollars)

(Reporting by Sonali Paul and Narayanan Somasundaram; Editing by Richard Pullin)