Update 2-International Paper to drop bid for Smurfit Kappa-sources

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London, June 5 (Reuters) - International Paper is planning to walk away from its takeover approach for Irish packaging company Smurfit Kappa, according to two people with direct knowledge of the matter.

International Paper will announce shortly it is dropping its acquisition pursuit after courting Smurfit for more than three months, the sources said, asking not to be identified because the matter is confidential.

The U.S. company has until 7:00 a.m. local time on Wednesday to make a firm offer or drop its attempt to buy Smurfit after the Irish Takeover Panel set a deadline last month.

Under Ireland’s rules, Memphis-based International Paper will be barred from making a fresh attempt to buy Smurfit for 12 months once it has dropped its current approach.

The decision comes after the American company made two takeover proposals in February and March, both of which were rejected. The first valued Smurfit at 36.46 euros a share and the second at 37.54 euros per share, or 8.9 billion euros.

International Paper last month ruled out making a hostile bid for Smurfit and instead asked the Irish company to discuss its proposal.

Neither Smurfit nor International Paper immediately responded to requests for comment. (Reporting by Graham Fahy, editing by Larry King)