UPDATE 3-India's Satyam barred from World Bank business

(Updates with World Bank statement)

By Saikat Chatterjee and Prashant Mehra

MUMBAI, Dec 23 (Reuters) - India's Satyam Computer Services Ltd (SATY.BO) was barred from business with the World Bank for eight years, dealing a setback to the company just a week after it canned a deal which upset investors.

Satyam's shares have tumbled 28 percent since it said last week it would pay $1.6 billion for two infrastructure firms in which the management held stakes and then quickly dropped the plan.

The stock shed a further 13.6 percent on Tuesday to its lowest in more than four-and-a-half years on a media report, later confirmed, that India's fourth-largest outsourcer had been declared ineligible for direct contracts with the World Bank from September.

"Unlike last week, this issue will directly impact earnings," said Ambareesh Baliga, vice president at Karvy Stock Broking.

The World Bank said in a statement its decision followed a temporary suspension in February.

"Satyam was declared ineligible for contracts for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors," it said.

The extent of World Bank business for Satyam, which specialises in business software and offers back-office outsourcing services, was not available.

A company spokeswoman said the Hyderabad-based firm did not comment on individual clients.

The share price ended at 140.40 rupees in a Mumbai market down 2.4 percent. In New York, Satyam (SAY.N) shares were 16.5 percent lower at $6.90 in early trade.

The stock has lost 69 percent of its value this year, underperforming a 50 percent drop in the IT index .BSEIT as overall worries mount for the sector due to a global economic slowdown which threatens order flow from key U.S. and European clients.

Satyam, whose clients include General Electric (GE.N), Nestle (NESN.VX) and Qantas Airways (QAN.AX), cut its sales forecast in October.

It said revenue would grow between 19 percent and 21 percent in U.S. dollars in the year to March 2009, slower than the 24 to 26 percent growth seen in July.

After last week's cancelled deals, which raised investors' concerns about corporate governance, a slew of brokerages have downgraded the stock saying it would be hard for Satyam to restore investor and client confidence.

The company may try to placate shareholders through a share buyback, which is to be considered at a board meeting early next week but analysts said investors would be nervous that the World Bank ban might put off other customers.

"Essentially, it is a case of loss of confidence in the company," said V. K. Sharma, head of research at Anagram Stock Broking. (Additional reporting by Sumeet Chatterjee in Bangalore and Lesley Wroughton in Washington; Editing by Charlotte Cooper and Jon Loades-Carter)