UPDATE 1-Escada insolvency looms as bond exchange fails

* Reached 46 pct approval for swap, below needed 80 pct

* Cancels capital increase

* Escada says to file for insolvency this week

(Adds detail and background)

FRANKFURT, Aug 11 (Reuters) - German luxury fashion house Escada ESCG.DE failed to get sufficient backing for its crucial bond exchange on Tuesday and said it would file for insolvency later this week.

Escada failed to reach an approval rate of at least 80 percent for its bond swap. Only 46 percent of the bondholders agreed to forego more than half of their investments.

"As previously communicated ... the board of management intends to file for the opening of insolvency proceedings due to imminent illiquidity of Escada AG this week," Escada said in a statement late on Tuesday.

It also canceled a planned capital increase for which a successful bond exchange had been the precondition.

The company said on Monday it would file for insolvency if it failed to gather enough support. Its supervisory board is due to meet on Wednesday to discuss the next steps.

Escada shares dropped by about a third on Tuesday and closed at 1.55 euros. [ID:nLB693521]

ECCENTRIC DESIGNS

Escada rose to fame in the late 1980s and early 1990s thanks to the colourful, eccentric designs of the late Margaretha Ley, who founded the company with husband Wolfgang in 1976.

In recent years, Escada struggled to sell its clothes, which some have labeled old fashioned. The recession has compounded its difficulties.

The first warning signs came in March when Escada posted a hefty 2007/08 loss, warning that it could run into difficulties if it failed to raise fresh cash in the next few months. [ID:nLH443405]

Escada launched a refinancing plan in April, which hinged on the bond swap. (Reporting by Eva Kuehnen. Editing by Robert MacMillan)