THE Pentagon may recommend divestiture to curb any anti competitive impact on the defence industry of the Boeing proposed merger with McDonnell Douglas or could halt the deal altogether, US Defence Secretary Mr William Perry said at the weekend.

Mr Perry said a Defence Department review of the combination began shortly after the companies announced their plan last weekend.

"The issue is whether one segment of the defence industry is monopolised as a result of it," he said. "And if it is, we can either recommend stopping the merger or we can recommend divestiture of the one segment which is likely to be a problem."

"That might happen. It has happened in the past. It could happen this time." But Mr Perry gave no indication that the Pentagon would seek any such action. President Clinton has nominated Senator William Cohen, a Maine Republican, to replace Mr Perry as defence secretary.

Boeing President Mr Phil Condit said last Sunday the new combined company would continue selling Douglas planes as long as there was a market for them.

The combined company will have about 20,000 employees. This includes the recent merger of the Rockwell aerospace and defence units into Boeing.

McDonnell Douglas, based in St Louis, Missouri, is the leading maker of military aircraft and the number two defence contractor, but suffered a big setback when it was not considered for the Joint Strike Fighter project.