Lehman Brothers Holdings Inc said it will drop its appeal of a bankruptcy court's ruling upholding Barclays Plc's purchase of Lehman's North American business in 2008 to avoid an unnecessary strain on its remaining assets.

In a statement, Lehman said on Wednesday it will drop its challenge of Judge James Peck's February ruling denying its attempt to overturn the sale, which was completed in the hectic days following Lehman's $639 billion bankruptcy filing.

It also said it will not pursue an appeal of Peck's follow-up decision earlier in September that Barclays had not improperly withheld $500 million in bonuses for employees it inherited in the takeover.

Lehman said it disagrees with Peck's rulings, but: We have determined that ... the resources of the court and the estate will be better employed at this point to move the bankruptcy toward a conclusion.

Lehman had accused Barclays, which bought its North American brokerage for $1.85 billion, of securing an $11 billion windfall by withholding information from the court during the sale process.

At trial last year, Lehman said the British bank took advantage of market chaos to make a sweetheart deal, while Barclays said the purchase was the best deal possible given the near-collapse of financial markets.

Judge Peck in February upheld the sale's validity, saying that while the deal was imperfect, the allegedly withheld information would not have affected its approval.

In a subsequent decision handed down September 14, Peck also rules that Barclays had not acted inappropriately with respect to employee bonuses.

Lehman had argued that Barclays paid only $1.5 billion of the $2 billion in bonuses it had promised employees, and that the remainder should go back to Lehman for the benefit of its creditors. Peck ruled that the $2 billion figure was an estimate, not a hard number.

In response to Lehman's announcement on Wednesday, an attorney for Barclays said that Lehman wasted tens of millions of dollars in flawed and inappropriate litigation.

The report that Lehman and its creditors committee are abandoning their $11 billion appeals ... confirms what Barclays represented to the court before the trial even began -- that the Barclays sale benefited Lehman's creditors, customers and employees, attorney Jonathan Schiller, of law firm Boies Schiller & Flexner said in a statement.

A Lehman spokeswoman declined further comment on the decision to drop appeals.

For Lehman, shedding the lawsuit means it can devote more time and money to its proposed $65 billion payout plan, exiting bankruptcy and paying back creditors.

The company is negotiating with creditors in hopes of securing broad support for the plan, and has already gained support from key creditor factions holding well over $100 billion in claims.

Creditors are set to vote on the plan in November, with a court confirmation hearing slated to begin December 6. Should the plan be approved, Lehman could forseeably end its bankruptcy and begin making creditor payouts in early 2012.

Lehman's decision to drop the litigation does not affect separate appeals in a dispute between Barclays and James Giddens, the trustee liquidating Lehman's brokerage.

Both Giddens and Barclays have appealed aspects of Peck's February ruling related to entitlement to various groups of assets. The ruling entitled the trustee to more than $4 billion in collateral Lehman had posted to cover outstanding derivatives trades, but said $1.1 billion in other assets belonged to Barclays.

A spokesman for the trustee declined to comment on Wednesday.

Separately on Wednesday, Lehman issued its monthly operating report for August, revealing it spent $34.6 million in legal and other professional fees over the course of the month. It has now spent nearly $1.41 billion on professional fees in three years since filing bankruptcy.

The case is In re Lehman Brothers Holdings Inc, U.S. Bankruptcy Court, Southern District of New York, No. 08-13555

(Reporting by Nick Brown; editing by Gerald E. McCormick and Andre Grenon)

Lehman brothers Barclays Sale