UPDATE 1-Provident Financial buoyed by collapse of hostile bid

* Non-Standard Finance drops 1.3 bln stg bid Tuesday

* Provident says welcomes decision

* Shares in Provident up 16.6%, NSF shares down 4.2% (Adds detail from statement, analyst quote, background)

By Simon Jessop and Carolyn Cohn

LONDON, June 5 (Reuters) - Provident Financial's shares jumped on Wednesday after the collapse of a hostile takeover bid for the doorstep lender by rival Non-Standard Finance.

NSF's ditching of its 1.3 billion pound ($1.65 billion) deal late Tuesday ended a war of words lasting several months that pitched institutional investors against each other in the battle to define the strategy of Provident.

Provident shares, which have fallen 80% over the past two years, were up 16.6% at 1018 GMT, the top gainer in Britain's mid-cap index, whilst NSF shares were down 4.2%.

The board of Provident said it "greatly regrets the unnecessary distraction, cost and impact of the uncertainty on Provident's customers and staff caused by NSF pursuing its extended hostile offer".

The firms exchanged blows several times, with NSF accusing Provident of mismanagement and scaremongering about the deal, and Provident raising concerns about historical dividends and share buybacks made by NSF.

NSF made its offer following Provident's botched reorganisation of its home credit business that led to profit warnings, its CEO's exit and a dividend suspension.

NSF last week said it had won over investors with 53.5% of Provident's shares, which was far short of its 90% target. It abandoned its attempt after the regulator said the merged group's capital buffers would not be sufficient.

Doorstep lenders provide credit to people who do not meet the lending criteria of mainstream banks, selling to customers in their own homes via networks of sales agents who collect repayments regularly.

They and other so-called subprime lenders have seen rapid growth in Britain since the financial crisis, but the high interest rates charged for loans have fuelled a public and political backlash, leading to a regulatory crackdown.

The bid by NSF, whose chief executive John van Kuffeler is a former boss of Provident, had the backing of Woodford Investment Management, Invesco and Marathon. The three investors together hold more than 50% of both firms.

But NSF failed to find support for the deal from other leading investors, including Janus Henderson, Schroders and Aberdeen Standard Investments.

"The enlarged NSF Group would not have sufficient regulatory capital on a consolidated basis at completion due to the expected level of minority interests at that point," NSF said in its Tuesday statement.

The deal was also being examined by Britain's competition watchdog, which was due to give its verdict next month.

The failed bid represents another blow for former star manager Neil Woodford, a strong proponent of the deal, who has seen billions of pounds leave his funds over recent months and was forced to suspend his main fund this week.

Peel Hunt analyst Anthony Da Costa said he retained a 'reduce' rating on NSF given deal-related costs of between 10 million pounds and 10.5 million pounds.

($1 = 0.7876 pounds) (Editing by Elaine Hardcastle)