Merrill Lynch agreed yesterday to pay $100 million (€108.73 million) to settle charges that it hyped stocks to please companies with which it was doing business, and announced structural reforms to create a "firewall" between the company's analysts and investment bankers.

The world's largest investment firm also apologised to clients for publishing recommendations inconsistent with those of its research analysts in the period 1999-2001, but did not admit wrongdoing or liability.

Under the settlement, negotiated with New York's attorney general, Mr Eliot Spitzer, the $100 million will be split among various state regulators, with $48 million going to New York state.

The public apology "for the inappropriate communications brought to light by the New York State Attorney General's investigation" was made to clients, shareholders and employees and was part of the deal with Mr Spitzer.

Merrill Lynch said: "We sincerely regret that there were instances in which certain of our internet sector research analysts expressed views that, at certain points, may have appeared inconsistent with Merrill Lynch's published recommendations."

The "inappropriate communications" were internal e-mails written by analysts uncovered in an investigation of the firm by Mr Spitzer's office.

They included such comments as: "Nothing interesting about this company except investment banking fees" and "piece of junk", concerning companies for which Merrill Lynch maintained "buy" ratings and with which it was doing investment business.

Mr Spitzer is also investigating several other major Wall Street brokerage firms and the Merrill settlement is likely to serve as a model in each case.

Merrill Lynch recovered some of its recent share price losses after the settlement was announced yesterday morning, but the investment sector remains depressed because of the expanding probes.

By not admitting wrongdoing or liability, individual suits against Merrill Lynch will have to be settled on a case-by-case basis, analysts said.

"This agreement changes the way Wall Street will operate," Mr Spitzer told a news conference. "By adopting the reforms embodied in the settlement, Merrill Lynch is setting a new standard for the rest of the industry to follow."

Under the reforms Merrill Lynch has agreed to "further insulate securities research analysts from any real or perceived undue influence from its investment banking division". There is to be a complete separation of the evaluation and determination of research analyst compensation from the investment banking business.

In future research, analysts will be compensated only for those activities that benefit investor clients.

A research recommendations committee will review all initiations of and changes to stock ratings for objectivity and integrity.

A new system will monitor electronic communications between investment bankers and equity research analysts. Equity research reports will contain added disclosure, including whether Merrill Lynch will receive or has received from a covered company compensation over the previous 12 months for equity underwriting and merger and acquisition transactions.

Mr David Komansky, Merrill Lynch chief executive, and Mr Stan O'Neal, the firm's president, said: "Our good faith negotiations with the Attorney General have resulted in further actions to strengthen the firewalls between research and investment banking." At a press conference yesterday, Mr Komansky said the reforms applied to Merrill Lynch operations worldwide.

He also said that the penalty for any analyst breaking the new rules would be "termination".