United Airlines and Continental Airlines are moving closer to announcing as early as Monday that they will merge to form the world's largest carrier by passenger traffic, according to sources.

The United Airlines board of directors held a special meeting as union leaders acknowledged that a bankruptcy filing by the world’s second largest airline appeared imminent.

Trading in United Airlines’ shares was halted in the US today after they plunged 59%, a day after the world’s second-largest carrier lost its request for government loan backing it said was needed to keep it out of bankruptcy.

United Airlines is to axe 1,250 jobs and close three reservation centres as part of cost-cutting efforts aimed at saving the troubled US carrier about $100m (€102.7m) a year.