Shares of Praxair jumped more than 5.5 percent in morning trade Tuesday after confirmation the U.S. firm was in talks for a potential merger with German industrial gases group Linde.
With those sharp gains, Praxair led advancers in the S&P 500 materials sector, the only positive sector in morning trade. The stock later pared its gains, ending the day up about 2.75 percent.
Both the the U.S. and German firms confirmed in releases Tuesday they are in preliminary discussions regarding a potential merger. On Monday, Reuters and The Wall Street Journal had reported on the merger talks based on sources familiar with the matter.
"These discussions are ongoing and have not resulted in any concrete results or agreements yet. Accordingly it is currently not foreseeable whether there will be any kind of transaction," Linde said in a release. Shares of Linde were more than 10 percent higher in late-session trade in Frankfurt.
A combination of the two companies could face challenges from regulators as major deals have recently fallen apart due to antitrust concerns.
But Linde already has a strong position in health care in North America, where the firm supplies gases to hospitals and patients with respiratory disorders. Praxair is more focused on industrial on-site production, which means a market share of close to 50 percent resulting from a merger should not spark opposition from U.S. antitrust regulators, analysts in a Reuters report said.
—Reuters contributed to this report.