In a statement, the companies said the merger, agreed in June, was called off because it was not in the best interests of shareholders.

It would have been the seventh largest corporate merger in history.

The two firms had planned a share-swap combination - worth nearly $34bn when it was unveiled.

An American Home Products (AHP) spokesman said the agreement was mutual and neither party would be required to pay a break-up fee.

He said AHP was not considering other merger partners, but the company was "open to opportunities."

Rumours confirmed

The New York stock market had been awash with rumours that the deal was to be called off since the beginning of the month.

The deal is off for AHP chairman John Stafford

On October 2, shares in Monsanto plunged on concerns that the agreement was set to fall through.

Neither company's shares opened for trading on the New York Stock Exchange as trading was suspended following the news.

Traders said AHP shares were expected to open at between $45 and $47, down from Monday's $50 close.

Monsanto shares were set to open at $38 to $40, down from $50.375.

The merger would have seen Monsanto shareholders receive 1.15 shares in the merged company for each of their own shares.

They would have owned about 35% of the combined company.

Monsanto Chairman Robert Shapiro and AHP Chief Executive John Stafford planned to serve as co-chairmen and co-CEOs.

American Home Products, based in Madison, New Jersey, makes pharmaceutical products, including Advil pain reliever and Robitussin cough syrup.

Monsanto is based in St Louis and its products include the artificial sweetener NutraSweet, agricultural products, and drugs, including the sleeping pill Ambien.

Earlier this year, American Home Products was the target of a takeover bid by SmithKline Beecham, the US/UK pharmaceuticals company.

The deal was abandoned when SKB entered merger talks with Glaxo Wellcome.