LONDON -- The London and Frankfurt stock exchanges agreed to merge, the London Stock Exchange announced Wednesday. The combination creates Europe's largest stock market and a powerful regional counterweight to Wall Street.

The London exchange and Germany's Deutsche Boerse would each own 50 percent of the new entity, which is to be called iX, for International Exchanges. Its headquarters are to be in London.Under the merger agreement, shares in blue-chip companies would be traded in London, while shares in high-tech firms would be traded in Frankfurt, the London Stock Exchange said.

The Anglo-German union includes a formal cooperation agreement with the technology-heavy U.S. NASDAQ market. The London exchange did not give specifics on this linkup with NASDAQ but said it did not involve mutual ownership.

"This merger will create benefits for investors, issuers and intermediaries regardless of their size. All market participants will benefit from lower spreads due to higher liquidity," said Werner Seifert, chief executive of Deutsche Boerse, who will be chief executive officer of iX.

Don Cruickshank, chairman-designate of the London Stock Exchange, will be chairman of iX.

The merger brings to a climax two years of fitful efforts by the London and Frankfurt exchanges to combine.

They began trying in 1998 to form the hub of a pan-European stock market and later enlarged their plan to include six other national stock markets.

The ambitious effort foundered when London and Frankfurt apparently failed to agree over issues of ownership and the type of trading platform to be used in a regional exchange.

The two exchanges have resolved their differences over technology by adopting Frankfurt's Xetra trading platform, the London exchange said.

The Anglo-German merger underscores the growing power of Frankfurt as a financial center rivaling London. While the London exchange has a larger market capitalization, the Frankfurt market is more diversified and profitable.

Pressure on Europe's national stock exchanges to consolidate has recently intensified due to the introduction last year of a single European currency, the euro, together with competition from U.S. markets and electronic share-trading networks.

Last month, stock markets in Paris, Brussels and Amsterdam formed a three-way regional exchange. The trio tried, without success, to persuade the London exchange to join them. Such a move would have left the Frankfurt bourse relatively isolated in Europe.

In a sign of potential consolidation yet to come, the London exchange confirmed that it and the Deutsche Boerse have also held talks aimed at closer cooperation with stock markets in Milan, Italy, and Madrid, Spain.

Share trading in Europe has soared in popularity as more private individuals invest for their retirement and institutions find it easier to buy shares in companies listed elsewhere in the 11 euro-zone countries.

Nasdaq, which is eager to expand in the region, unveiled a plan in November to create an Internet-based European network called Nasdaq-Europe.

Scheduled to begin operating late this year, the network is aimed at helping the region's high-growth companies raise money and at making it easier for Europeans to invest in blue-chip American and Asian stocks.

It was not immediately clear how Nasdaq's expected linkup with the combined Anglo-German exchange would affect Nasdaq-Europe.