UPDATE 1-Woolworths withdraws Warehouse NZ appeal

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SYDNEY, Oct 16 (Reuters) - Woolworths Ltd (WOW.AX), Australia's top grocer, will drop its move to appeal a New Zealand court ruling blocking it from bidding for The Warehouse Ltd (WHS.NZ) as the competition issue in the case was no longer relevant.

The Warehouse, New Zealand's biggest-listed retailer, said earlier this month it had scrapped plans to expand into the groceries market, so removing one of the competition regulator's main concerns about a bid for the group by Woolworths.

New Zealand's competition regulator said in court last week the way forward for Woolworths was to file a new takeover application if it planned to bid for Warehouse.

Woolworths, which owns a 10 percent stake in Warehouse as does its potential rival suitor, Foodstuffs, said it has made no decision on its stake or a potential takeover bid.

"Woolworths continues to monitor the performance of The Warehouse, the New Zealand retail climate, financial market conditions and the outlook for the New Zealand economy," it said.

New Zealand is suffering its first recession in a decade, with the central bank cutting interest rates to stimulate spending as it expects soaring inflation to ease next year.

Warehouse shares last traded down 2.3 percent at NZ$3.46, valuing the group at NZ$1.1 billion ($659 million), compared with the NZ$2.5 billion price tag analysts put on a potential offer from Woolworths a year ago.

Woolworths fell 2.8 percent to A$25.65, in a broader market .AXJO down 6.3 percent. ($1=NZ$1.67) (Reporting by Sonali Paul; Editing by James Thornhill)