The Premier League outfit have been searching for a replacement since sacking Bruno Lage earlier this month, but to no avail.
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Julen Lopetegui was the front runner before deciding against a move due to family reasons.
Wolves quickly turned to Michael Beale and made an approach to speak to the QPR manager.
However, he decided against talking to them and opted to stay with the Championship table toppers.
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With the World Cup in Qatar a month away, Wolves have decided to keep interim boss Davis in charge until at least then and into the new year.
It will allow the club a month to assess options before the Premier League restarts again on December 26.
In a statement, chairman Jeff Shi said: "In the short time Steve and his team have been in interim charge of the first-team, we have already seen improvements to the group, with the players responding well to their methods and the changes they have started to implement.
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"Steve understands the culture and standards set at this club, and we want to give him and his team clarity on their positions and allow them the best possible opportunity for success.
"While there are no outstanding candidates to appoint on a permanent basis to the head coach position, we have complete faith in their ability and leadership to continue their roles into the World Cup break and new year.
"We have no plans to rush our search for a new permanent head coach and will not compromise in any way our approach to appointing the person we believe to be the perfect fit for our club, our squad and the role of head coach at Wolves."
Wolves' next match is against Leicester at Molineux on Saturday at 3pm.