UPDATE 2-NAB pulls out of talks for ABN's Australia, NZ units

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By James Thornhill and Clara Ferreira-Marques

SYDNEY/LONDON, July 22 (Reuters) - National Australia Bank (NAB.AX) has pulled out of talks to buy ABN AMRO's Australian and New Zealand unit from Royal Bank of Scotland, it said on Tuesday, just over a week after announcing it was in negotiations.

RBS (RBS.L) led a consortium of banks in the takeover of Dutch rival ABN last year and is selling the Australian unit as part of efforts to restore its balance sheet, battered by the sector's biggest ever takeover and the global credit crunch.

Two other bidders are reported to remain in the running for the Australian unit, valued at around A$800 million ($784 million), but the withdrawal of a high-profile suitor is likely to focus attention again on RBS's planned asset sales, as interest in its insurance unit, the largest asset on the block, dwindles.

The Australian Financial Review reported earlier this month that Commonwealth Bank of Australia (CBA.AX) and Japan's Nomura (8604.T) were bidders for ABN's Australian unit.

RBS declined to comment on Tuesday. NAB also offered no explanation for its decision to withdraw from talks.

Trying to cement its position as Australia's largest bank in the face of a merger between two rivals Westpac and St George, NAB said earlier this month it was in talks to buy the ABN unit, which analysts value at around A$800 million based on an estimated 2008 profit of A$105 million. That compares with profit of A$131.4 million in fiscal 2007.

Analysts said at the time NAB's interest in ABN AMRO signalled a return to the retail brokerage business after it closed a stockbroking business in the 1990s, but the plan raised eyebrows in the market and the bank's shares fell as much as 4 percent when it announced the talks on July 11.

NAB is also reported to have held talks with Citigroup (C.N) to buy Citi's Australian retail brokerage business.

ABN's Australian and New Zealand units comprise wholesale corporate and investment banking operations and two retail distribution joint ventures. It had about 750 staff at the end of 2007.

RBS shares were down 5.6 percent at 191.7p at 0849 GMT, underperforming a 2.8 percent drop in the battered European banking sector, as U.S. results again rattled investors.

NAB shares closed before its statement was released at A$27.65, down 2.4 percent. (Editing by Mark Bendeich and Quentin Bryar)