If you know for sure who's responsible for spreading a nasty rumor about you, don't take it lying down. When you have a chance, walk right up to him or her and say that you don't appreciate the mean things s/he has said. Stay calm when you do this - you don't want to resort to the cruel words that this person has. You also don't want to give bystanders the impression that the rumor's true if it's not - if they don't know all the facts, they may assume an especially angry rebuttal means that the rumor's true.
Say something polite yet direct, like: "Hey. I want you to know that I don't appreciate the things you've been saying about me. Please stop." Then, just walk away - this person doesn't deserve your time. Ignore any insults you hear as you're walking away.
Sometimes, the person who started the rumor didn't do it on purpose. It may, for instance, be a friend who simply let a secret slip by accident. In cases like this, it's OK to express your disappointment, but you should avoid acting in a way that seems vindictive or accusatory.