Japan’s Fast Retailing dropped out of the bidding war for Barneys New York yesterday, leaving the luxury chain in the hands of Istithmar, the investment arm of the Dubai government.

Jones Apparel Group, which owns Barneys, accepted Istithmar’s sweetened $942.3 million bid earlier this week and gave Fast Retailing until 5 p.m. yesterday to top the offer.

Fast Retailing, owner of the Uniqlo casual-clothing store chain, said a price above Istithmar’s offer would be too high in light of Barneys current value.

Istithmar, which twice raised its initial $825 million offer, may add to the seven Barneys locations.

Like other Middle Eastern companies, Istithmar is flush with oil cash and has been on a buying spree lately. It just snapped up the Queen Elizabeth 2, the famed cruise ship.

Istithmar is said to be interested in expanding the Barneys brand in the Middle East.

In February, the firm said it would spend $1.7 billion this year buying retail, industrial and financial-services companies.

Since 2003, the firm has acquired New York properties including the W Hotel Union Square.