By Taiga Uranaka

TOKYO (Reuters) - LVMH, the world's biggest luxury goods group, has scrapped a planned Louis Vuitton flagship store in Tokyo's glitzy Ginza shopping district, as a spreading recession takes the luster off designer brands.

LVMH has broken off talks over opening a store in a planned building in Ginza due for completion in 2010, an official for the developer, Hulic Co Ltd, said on Tuesday.

An LVMH spokesman said it had withdrawn from the project but declined to explain the decision or comment on its plans.

"We have not been able to reach an agreement with Hulic on a store development project in Ginza," said Yuri Matsueda of Burson-Marsteller, a public relations agent for Louis Vuitton Japan.

Awash with cash from a global luxury boom, fashion and jewelry brands poured money into lavish retail spaces in upmarket Tokyo neighborhoods such as Ginza and Omotesando over the past two years.

Earlier this year, media reports had talked of a 10-floor luxury Louis Vuitton emporium and restaurant to rival opulent new Armani and Bulgari towers in Ginza.

A weak yen also encouraged such investments, tempting Japanese fashionistas to shop at home rather than Europe, luring buyers from all over Asia to Tokyo and offering foreign brands bargains in the property sector.

While luxury goods firms gave optimistic forecasts for their trade as recently as May, banking on the super-rich to keep spending despite the economic slowdown, the mood has turned as the impact from the global financial crisis has grown.

Japan, the United States and much of Western Europe is in recession and growth is slowing in emerging markets such as China.

Several companies have cut their outlooks and expect a grim Christmas season followed by an even gloomier 2009.

LVMH had appeared to be weathering the downturn better than others. It said in October that sales had risen sharply in the first week of that month, and sales in emerging markets were holding up.

The Nikkei business daily reported on Tuesday Louis Vuitton Japan had planned to open what would be one of the world's biggest stores in Ginza but had to give up due to severe slump in luxury spending.

(Writing by Sophie Hardach; Editing by Rodney Joyce)