Morgan Stanley 'in merger talks'

The credit crisis has eaten into profits at Morgan Stanley

US investment bank Morgan Stanley is holding talks with possible suitors, reports say.

The bank is currently in talks with Wachovia and China Investment, about a takeover or investment opportunity, according to Reuters.

Shares in the group have taken a battering in recent days amid concerns about the effect of the credit crisis.

Recent dramatic changes in the world markets may mean more consolidation in the banking sector, analysts have said.

In the US, banking giant Merrill Lynch agreed to be taken over by Bank of America in a $50bn deal earlier this week.

Meanwhile, in the UK, Lloyds TSB came to the rescue of HBOS, the country's leading mortgage lender amid concerns for its survival.

Uncertain future

Traders now believe Morgan Stanley could follow suit after its shares plunged, over the past week.

News of a government rescue package to bail-out the stricken sector gave a Morgan Stanley's shares a boost on Friday, pushing them 26% higher to $28.44.

However, they remained 32% lower than their price two weeks ago.

Meanwhile analysts suggest Morgan's recovery and the government's rescue package have given the bank breathing room to consider its options.

The recent credit crisis - sparked by sub-prime loans to high risk borrowers in the US - has spread through the financial system, leaving many big names unsure about their future.