ITV broadcasters Granada and Carlton Communications have dropped talks about a merger.

They said they had been discussing a possible combination of their businesses, in step with proposed legislative changes.

Yesterday, they said: "The two boards have decided not to pursue these discussions."

A merger between the two - the biggest shareholders in ITV - would create an ITV giant to take on the global media players.

Granada, headed by chairman Charles Allen and chief executive Steve Morrison, holds seven ITV licences - Granada, Yorkshire, Tyne Tees, London Weekend Television, Anglia, Meridian and Border.

Carlton, headed by chairman Michael Green and chief executive Gerry Murphy, covers the Central, West Country, HTV and London regions.

The decision not to pursue discussions is understood to have been mutual, with no rows or falling out involved, a source close to the talks said.

The talks between the pair, which together own ITV Digital, were held ahead of the expected Communications Bill this year.

That follows November's consultation paper on media ownership rules, which cleared the decks for the creation of a single ITV company.

The statement comes after shares in Carlton surged, as rumours swept the market that the firm could be bought up by either Germany's Bertelsmann or Carlton's own management.

Other rumours had included a takeover by Granada, or selling ITV Digital.

Analysts still expect a merger between the pair to go ahead at some stage, creating a single ITV company, ultimately owned either by Granada, or by an outsider such as Bertlesmann.