Australia's QBE scraps $8.4 bln bid for IAG

(Adds fund manager comments)

By Sonali Paul

MELBOURNE, May 21 (Reuters) - QBE Insurance Ltd (QBE.AX) dropped its A$8.7 billion ($8.4 billion) bid proposal for rival Insurance Australia Group Ltd (IAG.AX) after IAG rejected it as too low, triggering an 8 percent slide in IAG's shares.

Analysts said there was nothing to stop QBE returning with another offer at some time as it had not made a formal bid.

"I'm sure they're not closing the book on it," said Rob Patterson, managing director of Argo Investments, which owns shares in both IAG and QBE.

That was the market's reading as IAG's shares did not fall as far as might have been expected in the wake of a profit downgrade last month.

IAG, Australia's top home and car insurer, said late on Tuesday that QBE's sweetened offer, pitched at a 10 percent premium to IAG's share price before their deal discussions were announced last month, was still too low.

QBE raised its bid by 6 percent this week to 0.145 QBE shares and A$0.90 cash for each IAG share, looking to secure a board recommendation on what it called its final offer.