(Rewrites, adds background on Abercrombie)
By Anya George Tharakan and Lauren Hirsch
July 10 (Reuters) - Shares of Abercrombie & Fitch Co plunged 21 percent on Monday and dragged down other stocks in the battered retail sector as the U.S. teen apparel maker terminated talks over a potential sale.
Investors saw Abercrombie's failure to sell itself as yet another blow to a retail sector already struggling to cope with changing consumer tastes and growing pressure from Amazon.com Inc and other online retailers.
Shares of Gap Inc, American Eagle Outfitters Inc and Express Inc all fell more than 4 percent.
Abercrombie, which has a market value of $650 million, had said in May it was in talks with several bidders regarding a potential sale, a day after Reuters reported that the retailer was working with an investment bank to field takeover interest from other retailers.
Private equity firm Sycamore Partners came closest to acquiring Abercrombie, but could not meet the company's valuation expectations, people familiar with the matter said on Monday.
Sycamore agreed two weeks ago to acquire U.S. office supplies chain Staples Inc for $6.9 billion, the biggest deal in the buyout firm's history.
American Eagle had also looked at striking a deal for Abercrombie in partnership with private equity firm Cerberus Capital Management LP, sources previously told Reuters.
Several teen retailers have struggled as their primary customers have abandoned malls in favor of fast-fashion chains such as European brand Zara, while the rise of online dropping has forced retailers to slash prices to compete.
Aeropostale Inc, Wet Seal and BCBG Max Azria Group LLC are among the retailers that have filed for bankruptcy over the past two years.
New Albany, Ohio-based Abercrombie defined teen apparel in the 1990s with its risqué advertising and its large logo on apparel, but has been hit hard as a new generation of shoppers avoids heavy branding in favor of more independent style. In response, Abercrombie has attempted to reinvent itself, and dropped its logo in 2014.
Abercrombie said on Monday it will focus on its surf-wear brand Hollister, the one bright spot of growth for the company.
Abercrombie also said it will "continue to refine and implement strategies to position the Abercrombie brand for revitalized performance" for its eponymous brand, which has reported falling quarterly sales since 2014. (Reporting by Anya George Tharakan and Sruthi Ramakrishnan in Bengaluru; Editing by Saumyadeb Chakrabarty and Bill Rigby)