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* Melco abandons second purchase of a 9.99% stake
* Closure of Macau casinos and slide in tourism hitting industry
* The deal had run into choppy waters even before virus outbreak
By Nikhil Nainan and Farah Master
Feb 7 (Reuters) - The new coronavirus epidemic has claimed its first big M&A deal, with Macau casino operator Melco Resorts & Entertainment Ltd pulling the plug on a stake purchase in Australia's Crown Resorts Ltd, citing a plunge in traveller numbers and casino closures.
Macau, the world's biggest gambling hub, has ordered casino operators to suspend operations for two weeks in a bid to limit the spread of the virus - a decision analysts say is likely to lead to months of cashflow bleed across the industry.
A slew of flight cancellations due to the virus has hit tourism in the region while the closure of stores and factories is also pounding business activity in China, a key source of international gamblers.
The developments were seen as the last straw for Melco's planned purchase of a second 9.99% stake in Crown from billionaire James Packer. The total planned acquisition of a 19.99% holding was valued at A$1.76 billion ($1.2 billion) when it was announced last May.
Even before the virus, the deal had raised regulatory concerns over links with Stanley Ho, father of Melco owner Lawrence Ho. Stanley Ho was previously under investigation by authorities in Australia and the United States for possible ties to organised crime.
Then in August, Packer froze the sale of the second tranche pending an investigation into alleged criminal activity at Crown's Australian operations.
"Any further acquisition of Crown would have likely been a bigger bite than Melco could reasonably handle. The reining in of what was beginning to look like an empire build should be looked on favorably by Melco shareholders," said Vitaly Umansky, analyst at Sanford C. Bernstein in Hong Kong.
Melco also shelved plans for a seat on Crown's board and analysts said it is likely to divest its current 9.99% holding in the future.
Blaming the epidemic, which has killed more than 630, for its decision, Melco said in a statement it wants to focus on its core investments. Melco makes around 90% of its revenue in Macau, which has confirmed 10 cases of infection.
It also has operations in Manila and Cyprus and is vying for a casino license in Japan, which executives are touting as the biggest market outside of Macau in Asia.
Crown, which reports half-yearly earnings on Feb. 19, unveiled a major management shake-up last month which included filling its chief executive post that had been vacant for about three years. Its shares ended flat on Friday. ($1 = 1.4846 Australian dollars)
Reporting by Farah Master in Hong Kong and Nikhil Kurian Nainan in Bengaluru; Editing by Edwina Gibbs