The combined enterprise, which will be called BP Amoco Plc, will have an initial market capitalisation of $110 billion, will be the third-largest oil company in the world and the biggest company in Britain. It will also be the leader in the US retail gasoline business, with 14 per cent of the market.

About 6,000 jobs out of a combined work force of 100,000 will be cut as overlapping positions are eliminated, the companies said. They did not say how much the merger would cost in terms of severance packages and other charges.

The company will be led by John Browne, chief executive officer of BP. The board of directors will be co-chaired by BP chairman Peter Sutherland and Amoco chairman Larry Fuller, though Fuller plans to retire in the year 2000.

BP said it will exchange 3.97 of its ordinary shares for each Amocoshare outstanding. Based on Tuesday's closing prices, that would make each Amoco share worth $51.61 and make the stock part of the deal worth $49.2 billion.

Securities Data Corp of Newark, N.J., which tracks the value of mergers and acquisitions, said including the assumption of debt, the deal is worth $54 billion.

BP's American Depositary Receipts, which each represent six ordinary shares, closed up $2.125 at $78.125 a share, and Amoco jumped $6 to close at $46.875, both on the New York Stock Exchange.

The deal proposes the largest industrial merger ever, exceeding the planned acquisition of Chrysler Corp by Daimler-Benz AG, worth $42 billion when it was announced in May.

The merger brings together one of Britain's top companies, which began in 1909 as the Anglo-Persian Oil Co, and a US oil company that was born out of the ashes of John D. Rockefeller's Standard Oil empire.

It will create a global oil giant with $108 billion in annual revenue, which would still rank behind Exxon Corp, which had$137 billion in revenue in 1997.

BP will dominate the new industrial colossus, holding 60 per cent of the stock and supplying six out of eight executive directors.

Amoco's headquarters in Chicago will be the base for the group's North American refining, marketing and transportation business. BP is based in London.

A substantial number of job cuts will be made in Cleveland, Ohio, where BP has its US headquarters, and in Houston, where Amoco's research offices are based.

The merger comes against a backdrop of depressed world oil prices, which have fallen to their lowest levels in more than a decade. Chicago-based Amoco last month reported a fall of more than 50 per cent in second-quarter earnings.

Analysts said Amoco, the fourth-largest US oil producer, was hurt by its lack of international refining and said a deal with a major oil company was only a question of time.

Browne called the combination "a superb alliance of equals with complementary strategic and geographical strength that effectivelycreates a new super major (oil company) that can better serve our millions of customers world wide."

Industry sources said the companies aimed to complete the merger by the end of 1998 and they did not see any regulatory hurdles.

While the two companies have some overlapping retail operations in the eastern half of the United States, that should not cause anti-trust concerns, William Lowrie, president of Amoco who will become a deputy chief executive of BP Amoco, said at a news conference here.

BP Amoco will control more supply and should be able to cut its costs enough to reduce retail gasoline prices, Lowrie said.

At least one analyst was sceptical.

"It would take some major cost savings for them to be able to argue they would be dropping prices," Kate Warne, energy analyst at St. Louis-based broker Edward Jones, said. "Yes they're going to be saving a lot of money combining the companies, but that is not mostly in their downstream US retail business -- it is in exploration and production andoverall combination of operations and things."

The companies said the merger would propel them into the world's top trio of major oil companies, along with Exxon and Royal Dutch/Shell Group.

"International competition in the industry is already fierce and will grow more acute as new players emerge," the partners said in their statement. "In such a climate the best investment opportunities will go increasingly to companies that have the size and financial strength to take on those large-scale projects that offer a truly distinctive return."

The new company set itself the target of at least $2 billion extra in annual pre-tax earnings by the end of the year 2000, from job cuts, streamlined business processes, better purchasing and more focused exploration.

The combined company could reduce overall expenditures on exploration, which currently exceed those of Exxon or Royal Dutch/Shell, Lowrie said.

But at the same time, it will also be able to be more aggressive in new areas, such as the former SovietUnion, China and Latin America, said BP deputy CEO Rodney Chase, who will retain that title and be in charge of exploration & production.

BP's earnings in 1997 were $4.6 billion and Amoco's $2.7billion. BP Amoco will be the largest producer of oil and gas in the United States and one of the world's largest marketers of fuels.