The stricken retail group has said it is to meet with shareholders and creditors again on Tuesday to try and come up with a new bid for state aid.

On Monday, the German government refused give Arcandor hundreds of millions of euros in either guarantees or emergency loans, decisions that could push the group into bankruptcy.

Government sources on Monday evening said that Berlin turned down a request for a federal loan of 437 million euros ($605 million) to tide Arcandor over while it seeks a merger with rival retail group Metro.

Arcandor's highest-profile brand in Germany, high-street department store giant Karstadt, has been struggling to maintain its market share for years now, with fashion chains, discount stores and shopping malls eating into its revenue.

Both the German government and the European Union had already talked down the prospect of a bailout, pointing out that the firm was in trouble even before the current recession began. Earlier on Monday Chancellor Angela Merkel said it was up to shareholders to lend the ailing company money in order to save it, adding that they needed a "permanent solution, and not a stop-gap to tide them over "for the next two to six months."

Double no

Hours earlier, the group's fight for survival had taken a major blow when Berlin rejected its bid for 650 million euros in loan guarantees, as had been widely expected.

The company has major debts due on Friday June 12, and says that it cannot foot the bill without help. The company has over 50,000 employees in Germany, and has backing from major trade unions in its fight for survival.

"Of course we are taking the concerns of Arcandor employees seriously," the chairman of Angel Merkel's centre-right CDU/CSU parliamentary group, Volker Kauder said. "But it's no good pumping money in to keep the company afloat for a few more weeks, only later to admit that it didn't really make any sense."

If no help arrives by the end of the week, Arcandor may file for insolvency, wiping out all of the value for its shareholders and allowing a court-appointed administrator to take over, spin off the profitable Thomas Cook travel company and the Quelle mail-order business and shrink the stores chain.

Complex talks

German Economics Minister Karl Theodor zu Guttenberg has called on Arcandor to redouble efforts in negotiations with Metro. Speaking to reporters in Munich, he said that Berlin wanted to give Arcandor "a fair chance", but added that it had set clear conditions for offering a bridge loan.

"I can only call for the talks to be continued with suitable transparency and clarity," zu Guttenberg said, adding that a meeting between the two parties on Sunday had broken down and yielded very few "hard facts."

But negotiations between Germany's two high street giants are too complex to be completed in a hurry, Arcandor spokesman Koslowski said.

"This cannot be sorted out on a Sunday afternoon," he said.

Over 1,000 employees protested in front of Arcandor's head office in Essen on Monday, calling for the government to rescue the company.

"Without Karstadt, the city center will die," their banners read. "56,000 jobs are on the line."

mrm/dpa/AP/AFP

Editor: Chuck Penfold