* Packer to "step back" from all commitments - spokesman
* Investors, traders see Packer-led privatisation unlikely
* Crown shares touch month-low before paring losses (Adds quotes from ex-Melco exec, Macau background)
By Tom Westbrook and Farah Master
SYDNEY/HONG KONG, March 21 (Reuters) - Australian billionaire James Packer has quit the board of casino operator Crown Resorts Ltd due to mental illness, following a tumultuous period including a break-up with singer Mariah Carey and the failure of Crown's expansion strategy.
The unexpected departure by the 47-percent owner of Crown comes as the world's seventh-largest listed casino company tries to rebuild after the arrest of 18 staff in China in 2016 triggered a global pull-back.
"Mr Packer is suffering from mental health issues. At this time he intends to step back from all commitments," a Packer spokesman said in an emailed statement.
Crown shares dropped 1 percent to their lowest close in a month, while the broader market was flat. The stock was already under pressure as it went ex-dividend on Tuesday.
The company gave no details on Packer's health issues, but recent years have not been smooth sailing for either Crown or its high-profile director, the only son of late media mogul Kerry Packer.
Packer, 50, first left Crown's board in 2015, the year he was briefly engaged to singer Carey, and rejoined 14 months ago while the company was in crisis following the arrest of staff for breaches of gambling marketing laws in China.
The arrests prompted the Melbourne-based, A$8.9 billion ($6.8 billion) firm to reverse a decade-old global expansion into the Asian gambling hub Macau and Las Vegas, to focus on Australia. Packer declared the company's global strategy a failure.
He began selling assets to pay off his debts, including stakes in Macau-based Melco Resorts & Entertainment Ltd and Hollywood film company RatPac Entertainment.
He told The Australian newspaper in October "it has been a tumultuous four or five years for me".
"I've got China falling apart, the Australian casino businesses missing budgets by big amounts, I've got Mariah breaking up with me... " he was quoted as saying.
In February, he was named by Israeli police as a witness in a bribery investigation against Benjamin Netanyahu, having lavished the Israeli prime minister and his family with expensive gifts.
Packer forged Crown by selling his father's media empire to private equity firms a decade ago and buying casino interests from Vegas to Macau.
His personal stake in Crown, which once topped 50 percent, made Packer responsible for blunders that have crimped the company's growth prospects.
"Packer is the company," said a former Melco executive who did not want to be named due to the sensitivity of the situation.
Crown sold its third-stake in Macau-based Melco for $1.16 billion in May last year, just as it was about to recover from a slump in Chinese VIP gambling. Those shares are worth $4.6 billion at Melco's current valuation.
"It was a bad trade," said Mathan Somasundaram, Market Portfolio Strategist at stockbroker Blue Ocean Equities.
"In theory, that was the cash cow that was going to fund growth in other regions."
Business setbacks and relationship troubles have triggered mental health issues for Packer in the past.
After his first marriage break-up and the collapse of telecom company One.Tel, a joint venture with Lachlan Murdoch, in 2001, Packer told the Seven Network in Australia that he "became depressed" and "emotionally exhausted".
But even if he takes a step back from the business, Packer's stake in Crown, currently valued at about A$4.2 billion, will continue to fuel market rumours that he intends to take it private.
Angus Gluskie, a portfolio manager at White Funds Management, which owns Crown shares, said Packer's departure would remove a conflict of interest should he launch a buyout bid.
"It's been regularly rumoured, but I can't quite see it at the moment," he said.
$1 = 1.3009 Australian dollars Reporting by Tom Westbrook and Byron Kaye in SYDNEY and Farah Master in HONG KONG. Additional reporting by Nicole Pinto in Bengaluru Editing by Stephen Coates