TAIPEI (Reuters) - Taiwan's CTBC has dropped its bid to acquire rival Shin Kong, the financial conglomerate said on Friday, citing objections from regulators.

"Our company respects financial regulators' directives, and so following board discussion, we have withdrawn the bid," CTBC said in a brief statement.

CTBC made an unexpected move to acquire Shin Kong last month, upending a proposal for Shin Kong to merge with another peer, Taishin. Shin Kong has said it views Taishin as its preferred bidder.

CTBC's bid was rejected by the Financial Supervisory Commission earlier this week, calling it insufficiently complete.

The FSC said that while CTBC's plans were not approved, it still encourages financial firms to negotiate "benign" mergers and acquisitions that respect market order.

Taiwan's financial services industry is domestically focused and fragmented, and Taishin and Shin Kong hope that by merging they can expand and become a more globally competitive company.

Taishin said last week it would raise its offer for Shin Kong by 25% to about T$222.4 billion ($6.98 billion) in a deal that would be Taiwan's largest in the sector.

(Reporting by Faith Hung; editing by Jason Neely)