The London Stock Exchange and Frankfurt's Deutsche Boerse also announced atie-up with the technology-laden US Nasdaq market, offering up the prospectof an eventual global market-place for stocks.

The merged entity will be called iX-standing for International Exchanges-and will command 53 per cent of the traded volume in European equities and81 per cent of the European market for high-growth shares.

"This is the first step to an integrated pan-European market," said DonCruickshank, the LSE's newly appointed chairman who will also chair the newentity.

The 50:50 merger-ending two years of on-off negotiations between the Germanbourse and the London exchange-gives the two markets the firepower tocounter increasingly intense competition from electronic exchanges and otherbourses.

Completion of the deal, which will also include Frankfurt's Eurex market,the world's biggest derivatives market, is expected this autumn.

"What belongs together finally comes together...London is the largest cashmarket in Europe and we bring in the largest derivatives market world-wide,"Deutsche Boerse Chief Executive Werner Seifert, who will be CEO of iX, tolda news conference.

Rolf Breuer, chairman of Deutsche Boerse's supervisory board and chiefexecutive of Deutsche Bank, described the past two years of negotiations as"a rough road", but said he had every confidence that this merger would gothrough. A merger between Deutsche and Dresdner Bank ended in fiasco lastmonth.

The British government welcomed the move which it said should help to reducethe cost of capital for companies and would be good for the City of London."It's something we welcome," a spokesman for Prime Minister Tony Blair said."The implications of this merger for the City of London are extremelypositive."

Deutsche Boerse's state-of-the-art electronic trading system Xetra willbecome the common platform for iX and Seifert said he hoped to roll outXetra to all users by the first half of 2001.

The long-term goal was to take iX public via an initial public offering,Seifert added.

Outgoing LSE Chief executive, Gavin Casey, said companies on the merged iXbourse would be able to choose which currency to list in -- in fact they canlist in two currencies simultaneously -- and iX would consult extensively withthem over any moves to a common listing currency.

But he said it would make sense for all companies to list in euros in thefuture. That may push Britain further towards joining the single Europeancurrency.

"In due course it may well make sense for everything to be quoted in thesame currency," Casey told Reuters.

The exchanges have signed a letter of intent with Nasdaq, which liststechnology and growth stocks in the United States, to form a Frankfurt-basedEuropean market for growth stocks.

Nasdaq had planned to set up a separate London-based European exchange, andNasdaq CEO Frank Zarb said the new deal was an efficient short-cut."We have always championed a pan-European high-growth market and that's whatwe have here and secondly we have pursued an international connection andthat's what we have here," he said.

"It's one step towards a global market-place."

Zarb said the relationship between iX and Nasdaq was a "blank sheet ofpaper" with endless potential.

IX, pronounced "eye ex", invited other European bourses to join theLondon-Frankfurt tie-up, and said talks were being held already with theMilan and Madrid exchanges, which have signed a memorandum of understandingwith iX. Casey said Milan and Madrid were likely to join iX in 2001.

The accelerated iX merger follows the birth of Euronext, the merged Paris,Brussels and Amsterdam exchanges, which itself has made it plain it wantedto join with the LSE. Cruickshank now plans to meet with Euro next todiscuss future links.

Cruickshank said he looked forward to discussions with London derivativesexchange LIFFE but declined to elaborate.

IX's Seifert was bullish about future tie-ups with other exchanges."It's a small world and everybody is talking to everybody. We are lookingforward to having other discussions," he said.

"We do not regard today's step as the final step, probably it's one of thetriggering additional steps," Seifert told Reuters.

"We are open for all reasonable steps in the future and this includesconstructive discussions with Euronext and any other exchange as long as itserves our customers," he said.

The tie-up has been brought about amid intensifying competition, notablyfrom electronic upstarts, as trading goes pan-European.

The big dealers want a unified Europe-wide trading, clearing and settlementsystem to make business cheaper and avoid duplicating technology investmentcosts.

IX said in a statement: "It is intended that trading on the unifiedpan-European market will ultimately feed one central counter party", andsaid it wanted settlement to be delivered ultimately on a consolidatedpan-European basis.

The final shape of iX clearing settlement and netting systems has not beendecided yet. The merger will exclude Deutsche Boerse's 50 per cent stake ininternational clearing and settlement system Clearstream, which DeutscheBoerse will continue to hold.

Settlement will continue to be provided by Clearstream and the UK clearerCrestCo -- but the two clearers have started talks which could lead to afull merger.