MILAN (Reuters) -Shareholders of merchant bank Mediobanca have rejected the proposal of its chief executive Alberto Nagel to buy Banca Generali, daily la Stampa reported on Thursday, dashing a takeover that would have created Italy's largest wealth manager.

Opposition to the plan was led by the two main investors in Mediobanca, Italy's billionaire del Vecchio and Caltagirone families, who together hold nearly 30% of its capital.

The result deals a setback to Nagel's strategy to block a bid by state-backed Monte dei Paschi di Siena (MPS) to take over Mediobanca.

By acquiring Banca Generali, which is focused on private banking and wealth management, Nagel would have made Monte dei Paschi's bid for Mediobanca more expensive.

The rejection of the deal therefore removes a potential hurdle for Monte dei Paschi's takeover to succeed.

Banca Generali is owned by Generali, Italy's biggest insurer, whose key investors are Mediobanca, the Del Vecchios and the Caltagirones.

(Andrea Mandala, editing by Gavin Jones)