ABN Amro yesterday dropped its recommendation of Barclays' 64bn (£43bn) takeover offer to its shareholders - removing restrictions on talking to Royal Bank of Scotland's consortium about its rival 71bn break-up bid.

However, the Amsterdam-based bank hammered home its continuing "support of the strategic benefits of the combination with Barclays" in the world's biggest-ever takeover battle in the sector.

And there was no sign at all last night that the filing of an amended merger protocol with Barclays, which removes restrictions on ABN talking to the Royal camp, meant the Dutch bank would be rushing into more substantive discussions with the consortium with a view to recommending its break-up bid.

The bid from Royal and its partners, Belgian-Dutch insurer and bank Fortis and Santander of Spain, was last night worth 38.10 a share, with Barclays' offer valued at 34.61.

Royal's consortium hiked the cash element of its offer to 93% on July 16. Barclays, which had in April made an all-share offer, submitted a revised bid on July 23, comprising 37% cash.

ABN is understood to have remained in regular contact with the consortium, but mainly through advisers and generally only to clarify details of the Royal camp's bid.

Royal yesterday gave a guarded welcome to ABN's dropping of its recommendation for Barclays' bid - a move which had been anticipated widely given the London-based bank's offer was worth significantly less than that from the consortium by Friday night. It said: "We note ABN's announcement and hope that it leads to further co-operation."

Barclays raised its bid for ABN on Monday last week, aided by investments in it by ally China Development Bank and Singapore investment vehicle Temasek, but the value of the London-based institution's offer then fell sharply with a subsequent tumble in its share price.

The consortium submitted a revised bid on July 16 after the Dutch Supreme Court ruled ABN could sell US subsidiary LaSalle, which had been desired by Royal in the trio's original break-up offer, to Bank of America.

ABN did the LaSalle deal in April to help facilitate the friendly bid from Barclays - which would create an enlarged Amsterdam-based bank. However, the sale of LaSalle was frozen for a time by a ruling from a lower Dutch commercial court that it must be approved by ABN shareholders.

In the revised bid for ABN without LaSalle, Royal would acquire the vast bulk of the Dutch bank's global corporate banking and financial markets activities, and operations in Asia. Its share of the deal would be about 16bn.

ABN said yesterday that its supervisory and managing boards had discussed the consortium bid and the proposed Barclays offer on July 26 and 27 "with a view to coming to a reasoned position on both offers taking into account the best interest of the company's shareholders and other stakeholders".

It made it plain it continued to prefer the nature of Barclays' bid over the consortium's break-up proposal, but highlighted the inferior value of the London-based bank's offer at current share prices.

ABN said: "The boards note that the proposed merger with Barclays is consistent with ABN Amro's previously-articulated strategic vision. In addition, the strategic co-operation with China Development Bank should further enhance the growth opportunities of a potential combined Barclays/ ABN Amro group in the attractive Asian market and could result in creation of additional longer-term value for ABN Amro shareholders.

"The proposed transaction with Barclays is understood to be well on track to receive the required regulatory approvals and generally has accept- able and manageable post-acquisition risks."

ABN added: "The boards also took into account the positive opinion of the European Staff Council and the positive advice of the Central Works Council in respect of the proposed combination with Barclays, received by ABN Amro as part of the consultation process. The boards also noted the commitments made to employees and trade unions in respect of employees' rights and respecting of existing agreements."

However, ABN declared: "As at the market close on 27 July, 2007, the Barclays offer was at a 1.0% discount to the ABN Amro market price and at an 8.8% discount to the see-through value of the consortium offer. The boards are therefore, notwithstanding their support of the strategic benefits of the combination with Barclays, not currently in a position to recommend from a financial point of view the Barclays offer for acceptance to ABN Amro shareholders."

Turning to the consortium bid, ABN said: "The current value of the offer, with its high cash component, is attractive to the ABN Amro shareholders. As at the market close on 27 July, 2007, the consortium offer was at a premium of 8.5% to the ABN Amro market price and of 9.6% to the Barclays offer's implied value.

"The boards welcome the efforts made by the consortium in establishing a dialogue with the ABN Amro employee representative bodies and the commitments made to the ABN Amro employees with respect to redundancy procedures."

However, ABN added that its boards had "identified a number of significant risks to the consortium offer".

ABN said: "Whereas sources of integration risks are broadly similar to those identified for the Barclays offer, the ABN Amro boards have significant unresolved questions about the proposed break-up of ABN Amro and the proposed methodology of the consortium to implement such a break-up, as also explained to the consortium on 5 May."

There has been talk that hedge funds might next week try to vote down Fortis's raising of funds to finance its share of the ABN bid, although only time will tell on this score.

ABN said yesterday: "Whereas Santander shareholders have already approved the proposed transaction, approvals of the shareholders of Fortis and RBS are still outstanding and expected at the earliest on, respectively, 6 August and 10 August. The outcome of those votes remains uncertain at this stage."

And it added: "The approval of the proposed transaction by the Ministry of Finance and the views of the Dutch Central Bank in this respect remain uncertain, including as to timing and associated conditions of any such approval, particularly in view of the proposed break-up Taking the above factors into account, the boards of ABN Amro are not currently in a position to recommend the consortium offer for acceptance to ABN Amro shareholders."

Summing up, ABN said: " In light of the above, the boards are not currently in a position to recommend either offer for acceptance to ABN Amro shareholders. ABN Amro will further engage with both parties with the aim of continuing to ensure a level playing field and minimising any of the uncertainties currently associated with the offers with a view to optimising the attractive alternatives available to ABN Amro's shareholders.

"ABN Amro and Barclays have agreed further amendments to the merger protocol and the merger protocol, as amended, remains in effect. Under the amended merger protocol, it remains a condition for the Barclays offer that ABN Amro recommends the Barclays offer. Additionally, ABN Amro will be free to discuss the consortium offer with the consortium and its advisers."

John Varley, chief executive of Barclays, welcomed ABN's analysis of the competing bids.

He said: "We recognise that, at the current time, it is difficult for the boards of ABN Amro to make a clear recommendation to their shareholders. However, we are pleased to have their continuing support, and we are confident that our revised offer delivers the value, stakeholder benefits and certainty that will allow the boards to support a recommendation in due course."

Banking giant HSBC said yesterday it was not interested in bidding for ABN.