Dresdner said its management board had decided unanimously to abandon the merger and accused Deutsche of undermining the merger with its insistence to sell off all or part of Dresdner's investment banking unit Dresdner Kleinwort Benson.

"Through its behaviour Deutsche Bank withdrew the basis for trust," Dresdner said in a brief, angrily-worded statement.

The announcement followed a day of speculation that the two banks might be ready to scrap the planned merger.

Banking analysts and sources close to the two banks had insisted that a collapse of the merger would be too disastrous to contemplate, placing both banks back at square one in a rapidly consolidating global banking market.But many had questioned the logic of the merger, arguing that it failed to create a bank with the global investment banking muscle to take on the so-called "bulge bracket" of top players such as Goldman Sachs and Merrill Lynch.

Shares in the two banks and in insurer Allianz AG, which owns stakes in both banks, were suspended from trade before the announcement.

Deutsche could not be reached for comment immediately but said it would be issuing a statement shortly.

Dresdner's announcement coincided with speculation that Citibank had made a bid for Dresdner. Dresdner and Citibank declined to comment on the speculation.

"The market reacted negatively to the merger plans so it could receive this turnaround positively," said Michael Kunz, banking analyst at Michael Kunz at BNP Paribas in Frankfurt.

"But a company that makes a 180 degrees shift in its strategy is not necessarily too attractive an investment either. "It seems to be a question of politics and power here. There were so many overlaps and the whole Dresdner Kleinwort Benson issue seems to have been too much to ask."