NEW YORK (Reuters) - A U.S. judge blocked the pending $8.5 billion merger of U.S. handbag and accessories maker Tapestry and Capri on Thursday, a victory for the U.S. Federal Trade Commission in an industry where merger challenges are rare.

The FTC argued at an eight-day trial in New York that the merger would eliminate fierce head-to-head competition between the top two U.S. handbag makers and create a massive company with the power to unfairly raise prices for consumers.

Tapestry fought those claims, saying the deal was spurred by an intensely competitive U.S. handbag industry and was needed to fight back against European players like Gucci, which are increasingly grabbing market share.

The ruling in effect permanently blocks the proposed deal, Tapestry's lawyers said in court documents. There is scant precedent for merger challenges in the fashion industry, which tends to be too fragmented and competitive to foster traditional monopolies.

The decision is a win for the Biden administration ahead of the Nov. 5 presidential election, in which rising consumer prices have figured as a key issue. Had the deal proceeded, it would have brought six brands under one roof. Those brands are: Tapestry's Coach, Kate Spade and Stuart Weitzman; and Capri's Versace, Jimmy Choo and Michael Kors.

Tapestry and Capri had also argued before U.S. District Judge Jennifer Rochon that reviving the Michael Kors brand, investing in all Capri brands using Tapestry's greater resources and selling more handbags would actually increase competition in the industry, rather than reduce it.

The ruling follows approval of the merger by regulators in Japan and the European Union earlier this year.