Shares in Japan's Nippon Steel sank more than six percent Tuesday after it announced a deal to buy US Steel for more than $14 billion that will create the world's number two steelmaker.

The agreement will see Nippon pay $55 a share — a 40 percent premium on US Steel's closing price Friday — and comes after the US steelmaker launched a strategic review in August following several unsolicited offers for a partial or total takeover.

The deal will also see Nippon assume the US firm's debt, taking the total value of the agreement to $14.9 billion.

US Steel rejected an offer from its main US competitor, Cleveland-Cliffs, which valued the merger at around $10 billion.

US Steel's share price surged 26 percent to $49.59 in New York but the reaction was not as welcoming in Tokyo, where Nippon sank 6.1 percent at one point before recovering slightly to sit 3.3 percent down at the break.

The agreement has sparked a backlash in the United States, with United Steelworkers International president David McCall saying it demonstrated "the same greedy, shortsighted attitude that has guided US Steel for far too long".

And US Senator for Pennsylvania John Fetterman, who represents a state with many steel plants, vowed to try to block it from going ahead. 

"This deal will propel Nippon Steel into the top three global makers of steel," said Mark Chadwick, who publishes on Smartkarma. 

"The two combined will have a sizeable chunk of the global auto market and look well placed to benefit from the shift to EV motors known as e-steel.

"Even so, it is hard for me to get excited given the looming costs to decarbonize the industry. But maybe that's all it is — only the largest will survive."