8216;Morgan Stanley weighing possible merger8217;

Morgan Stanley shares closed down 10.8 per cent at 28.70 on Tuesday, having fallen 46 per cent so far this year.

Morgan Stanley officials in Hong Kong declined to comment on the report.

In an interview, Morgan Stanley8217;s Chief Financial Officer Colm Kelleher said the No. 2 US investment bank remains confident in its broker-dealer model and dismissed the need to merge with a deposit-taking bank, even as he maintained a cautious stance about the markets.

Traders in Asian said the report weighed on share markets, which pared early gains made on the US government rescue of troubled insurer AIG.

8220;The US government8217;s rescue of AIG helped the markets to avoid the worst case scenario, but the fact that only the government was willing to help indicated the gravity of US credit problems,8221; said Choi Seong-lak, an analyst at SK Securities in Seoul.

8220;Reports that Morgan Stanley is considering a merger with a commercial bank confirmed such fears, and market participants are now wondering if even Goldman Sachs is safe. Sentiment is extremely fragile.

Japan8217;s Nikkei average was up 1.3 per cent, while MSCI8217;s index of stocks elsewhere in the Asia-Pacific region was up 0.4 per cent, having been up as much as 2.9 per cent earlier in the session.