UPDATE 3-India's Satyam barred from World Bank business

(Updates with World Bank statement)

By Saikat Chatterjee and Prashant Mehra

MUMBAI, Dec 23 (Reuters) - India's Satyam Computer Services Ltd (SATY.BO: Quote, Profile, Research) was barred from business with the World Bank for eight years, dealing a setback to the company just a week after it canned a deal which upset investors.

Satyam's shares have tumbled 28 percent since it said last week it would pay $1.6 billion for two infrastructure firms in which the management held stakes and then quickly dropped the plan.

The stock shed a further 13.6 percent on Tuesday to its lowest in more than four-and-a-half years on a media report, later confirmed, that India's fourth-largest outsourcer had been declared ineligible for direct contracts with the World Bank from September.

"Unlike last week, this issue will directly impact earnings," said Ambareesh Baliga, vice president at Karvy Stock Broking.

The World Bank said in a statement its decision followed a temporary suspension in February.

"Satyam was declared ineligible for contracts for providing improper benefits to Bank staff and for failing to maintain documentation to support fees charged for its subcontractors," it said.

The extent of World Bank business for Satyam, which specialises in business software and offers back-office outsourcing services, was not available.