SAO PAULO, Brazil (AP) _ Brazil's two largest airlines, Varig and TAM denied reports Wednesday that they planned to cancel a proposed merger.

Earlier Wednesday, the justice ministry's secretary of economic rights, Daniel Goldberg, announced the two companies had scuttled plans for a merger but would continue with a code-sharing agreement.

But on Wednesday evening, Roberto Muller, a spokesman for both two companies, told reporters in Sao Paulo that Golberg's remarks had been misinterpreted.

Later Wednesday, the Justice Ministry confirmed that in a statement.

``In relation to the meeting this Wednesday morning with representatives of Varig and TAM, the secretary of economic rights wants to make clear that at no moment during the meeting did the companies announced they were canceling the merger,'' the statement said.

Muller said, however, for the time being the companies would continue their code sharing operations and at the end of two years make a final decision on whether to merge.

Varig and TAM announced plans for the merger a year ago amid a worldwide travel slump and a currency crisis in Brazil that forced Varig, Brazil's largest carrier, to the brink of bankruptcy.

But Varig managed to reduce its losses last year and posted an operating profit for the first time in years during the third quarter of 2003. Both airlines have benefited from a recovery in the Brazilian economy and a corresponding rise in travel.

A union of the two airlines would have given Varig and Tam about 70 percent of Brazil's domestic flights, a move that could have hurt VASP and Gol, the country's two other major carriers.