Earlier, a BlackRock spokesperson and Carige, Italy's 10-largest lender, said the fund had pulled out of the rescue, which called for a 720 million euro (619 million pounds) share issue.

Neither the fund nor bank gave a reason for the decision.

The source said BlackRock had wanted to keep its stake in Carige below 25 percent, but this was impossible given the lack of any more co-investors in the issue. Italian banks were also set to take up Carige shares, but not enough to keep BlackRock's stake below its desired level.

There were other reasons for the decision, the source said without elaborating.

(Reporting by Stephen Jewkes; Editing by Mark Bendeich)