Merger speculation has been heating up on just about every front, but talk of one much-rumored pairing appears to have been put to rest - at least for now.

Bank of New York Co. said late Thursday it had decided to abandon its yearlong bid to purchase up to 9.99% of outstanding shares in State Street Corp., its Boston-based rival.

Wall Street has long viewed the banks as ideal merger partners, and Bank of New York's bid to increase its initial 3.9% stake in State Street was widely seen as a prelude to an acquisition. The banks are the largest providers of back-office services, including processing, custody, and stock transfer, to mutual fund companies and other securities firms.

One analyst said the decision signaled a retreat by Bank of New York, but warned against ruling out an eventual bid for State Street.

"Maybe they want to appear more conciliatory," said Sally Pope Davis, a bank analyst at Goldman, Sachs & Co. "But to think that they have packed their bags and slipped quietly into the night would be underestimating them."

State Street has not been Bank of New York's only rumored target. The nation's third-largest provider of fund services, Mellon Bank Corp., Pittsburgh, was also recently rumored as a takeover candidate.

State Street shares were up 12.5 cents, to $72.3125, in afternoon trading Friday, in line with modest gains for most bank stocks. A spokeswoman for State Street, which had vigorously fought Bank of New York's bid to raise its stake, said the bank is committed to staying independent.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.