Such a tie-up still made strategic and financial sense and they did not rule out that talks may eventually be revived, three sources said, but both banks had wanted to drive the venture.

Deutsche Bank, its asset management arm DWS, and UBS declined to comment.

DWS shares were down 3% at 1447 GMT, rebounding slightly from sharper losses after the news of the stalled talks emerged.

The idea of merging the businesses mushroomed in recent months as Deutsche Bank discussed a possible merger with smaller rival Commerzbank.

A deal for Deutsche's DWS unit could have been a way to finance that merger, but with the Commerzbank talks ending in failure, the urgency to do an asset management deal fizzled out.

Any deal to merge DWS with a peer and give it additional scale could also be presented as a strategic revamp of Deutsche Bank after the failure of the Commerzbank talks.

A GOOD FIT

A combined UBS asset management unit and DWS would have just more than 1.4 trillion euros ($1.58 trillion) in assets under management and was considered a good fit as the two are roughly the same size.

DWS chief executive Asoka Woehrmann has said he wants to actively participate in consolidation in asset management and early last year Deutsche Bank listed it as part of a broader overhaul to help Germany's largest bank move on from a string of lawsuits and trading scandals.

A structure under consideration was for UBS to hive off its asset management business and fold it into DWS, which is 79.5 percent owned by Deutsche Bank.

A deal could have led to more than 1,000 job cuts, one banker said.

Deutsche Bank had also approached Allianz and Amundi, the French asset manager mostly owned by Credit Agricole, over a possible deal for DWS, other people close to the matter said.

As with the UBS talks, issues over who would be in driving seat of a merged entity led to the failure of the Allianz talks, two people close to the matter said.

Allianz's interest in medium-sized deals such as this one was limited, one added.

Allianz declined to comment.

(Reporting by Arno Schuetze in Frankfurt and Angelika Gruber in Zurich; Additional reporting by Alexander Huebner in Munich and Pamela Barbaglia in London; Writing by Tom Sims; Editing by Michelle Martin and Alexander Smith)

By Arno Schuetze and Angelika Gruber