While you were sleeping: Chemical mega-merger eases further losses on Wall Street

DuPont’s shares surged after the Wall Street Journal reported the company was in advanced merger talks with Dow Chemical, helping to partially offset negative sentiment.

At the Wall Street close stocks in both companies rose 12%, offsetting a further energy-stocks led decline in the Dow Jones Industrial Average. It was down 75.70 points, or 0.4%, to 17,492.30.

The Standard & Poor's 500 Index fell 0.8% to 2047.62, while the Nasdaq Composite Index dropped 1.5% to 5022.87.

The chemical juggernauts could announce a merger in the coming days, the Wall Street Journal reported, citing people familiar with the matter. Dow's chief executive Andrew Liveris is expected to be executive chairman of the new company, with DuPont chief executive Edward Breen keeping that title.

DuPont and Dow Chemical each have a market capitalisation of about $US60 billion. After the merger, the combined company will split into three businesses – agriculture, specialty chemicals and commodity chemicals.

"I think a deal like this couldn't have happened 3-6 months ago," Albert Fried & Co merger arbitrage strategist Sachin Shah told Reuters.

Also rising were shares of Chevron and those of Exxon Mobil, last up 1.9% and 1.6% respectively, helped by a reprieve in oil prices.

Crude futures lifted after the US Energy Information Administration said US stockpiles dropped by 3.6 million barrels last week. Analysts had expected stockpiles to edge higher.

US crude settled at $US37.16 a barrel, a near seven-year low.

Shares of Yahoo dropped 3.5%, after the company said it had suspended work on plans to spin-off its stake in Alibaba Group Holding. Instead it might do a reverse spinoff, transferring Yahoo's assets and liabilities other than the Alibaba stake to a newly formed company.

"In addition to our efforts to increase value and diminish uncertainty for investors, the ultimate separation of our Alibaba stake will be important to our continued business transformation," Yahoo chief executive Marissa Mayer said in a statement.

"In 2016, we will tighten our focus and prioritise investments to drive profitability and long-term growth. A separation from our Alibaba stake, via the reverse spin, will provide more transparency into the value of Yahoo's business."

The probability the US Federal Reserve will raise rates next week rose to 90%, from 70% previously, in the latest Reuters poll of more than 90 economists.

"Moving now appears more about getting the first hike out of the way and changing the conversation away from lift-off to the shallow path of hikes expected thereafter than it is about the current state of the economy demanding tighter policy," Morgan Stanley economist Ellen Zentner wrote in a note.

In Europe, the Stoxx 600 Index ended the session with a 0.4% decline from the previous close. The UK's FTSE 100 Index slipped 0.1%, while Germany's DAX Index retreated 0.8%, and France's CAC 40 Index dropped 1%.

UPDATED for Wall Street close 10am NZ time.

(BusinessDesk)