Corus said on Wednesday that it would not be going ahead with the merger because of "ongoing uncertainties in the global business environment and the financial markets."

The two companies had agreed in principle on the tie-up back in July.

The deal, which Corus said would generate cost savings of $250m (£160m) a year by giving it access to cheap Brazilian iron ore, would have created a steel industry giant with annual production of around 23 million tonnes

Sales disappoint

Corus also delivered a downbeat trading update, saying that demand in its core UK and European markets had been weaker than expected over the past few weeks.

The company said it still expected its losses for the second half of the year to narrow to about £152m, down from £252m over the six months to late June.

It also warned that while it expected its financial performance to continue improving, the outlook for next year remained uncertain due to global economic weakness.

The news dismayed investors, and Corus shares closed down 27% at 34p.

The decision to cancel the CSN merger follows a period of severe economic turbulence in Brazil, amid fears that the country's new left-wing president, Luiz Inacio Lula da Silva, would usher in budget-busting increases in social spending.

Brazil's currency, the real, has weakened against the dollar, and shares in Brazilian companies have fallen sharply.

CSN is Brazil's biggest steel producer.