Nissan will call off merger talks with rival Honda, the Nikkei newspaper said, abandoning a tie-up that would have created the world's No.3 automaker and raising questions about how it will drive a turnaround by itself.

Shares in Nissan slid more than 4% before trade was suspended by the Tokyo Stock Exchange following the report. Shares of Honda continued to trade and finished the day up more than 8%, in a sign of apparent investor relief that the deal had been scrapped.

Honda, Japan's second-largest carmaker, and Nissan, its third-largest, last year said they were in discussions to merge and create the world's third-largest automaker by sales, bulking up in an industry that faces a vast threat from China's BYD and other electric vehicle (EV) entrants.