* Failed to get the 33.4 pct minimum shareholder acceptance
* Fish farming stocks have been in high demand
* Government opposed the takeover (Adds details)
OSLO, June 21 Marine Harvest, the world's biggest fish farmer, dropped its $1.7 billion hostile bid for rival Cermaq after failing to convince enough shareholders to accept, it said on Friday.
Marine Harvest wanted to buy Cermaq to create an industry giant with a leading position in everything from feeds to processing but ran into stiff opposition, particularly from the Norwegian state, Cermaq's biggest shareholder.
"Marine Harvest has through the voluntary offer received acceptances below the 33.4 percent level set as a condition," it said on Friday. "Accordingly, Marine Harvest will not complete the voluntary offer."
Fish farming stocks have been in the spotlight this year because global demand is rising sharply when supply growth is limited, lifting margins after several lean years.
Shares in Marine Harvest, controlled by shipping tycoon John Fredriksen, are up 64 percent over the past year while Cermaq shares have risen 52 percent.
But getting the deal done seemed difficult from the start, in part due to an uneasy relationship between Oslo-born Fredriksen and the Norwegian government, which holds 43.5 percent of Cermaq.
Oslo-born Fredriksen has drawn extensive criticism from Norway's centre left government since giving up his Norwegian citizenship for a Cypriot passport to escape high taxes.
To fend off Marine Harvest, Cermaq first agreed to hold talks with private equity firms Bain and Altor to sell its biggest unit for $1.1 billion.
Then the Norwegian government also unveiled plans to raise its stake to up to 65 percent through an offer to existing shareholders, virtually ensuring Marine Harvest's bid would fail. (Reporting by Balazs Koranyi; Editing by Erica Billingham)