* Packer to "step back" from all commitments - spokesman
* Investors, traders see Packer-led privatisation unlikely
* Crown shares touch month-low before paring losses (Recasts, adds fund manager quote, background, share price)
SYDNEY, March 21 (Reuters) - Australian billionaire James Packer has quit the board of casino operator Crown Resorts Ltd due to mental illness, following a tumultuous period including a break-up with singer Mariah Carey and the failure of Crown's expansion strategy.
The unexpected departure by the 47-percent owner of Crown, comes as the world's seventh-largest listed casino company tries to rebuild after the arrest of 18 staff in China in 2016 triggered a global pull-back.
"Mr Packer is suffering from mental health issues. At this time he intends to step back from all commitments," a Packer spokesman said in an emailed statement.
Crown shares dropped 1.4 percent to their lowest price in almost a month following the announcement, while the broader market was flat. The stock was already under pressure as it went ex-dividend on Tuesday.
The company gave no details on Packer's health issues, but recent years have not been smooth sailing for either Crown or its high-profile director.
Packer, 50, first left Crown's board in 2015, the year he was briefly engaged to singer Carey, and rejoined 14 months ago while the company was in crisis following the arrest of staff for breaches of gambling marketing laws in China.
The arrests prompted the Melbourne-based, A$8.9 billion ($6.8 billion) firm to reverse a decade-old global expansion into the Asian gambling hub Macau and Las Vegas, to focus on Australia. Packer declared the company's global strategy a failure.
In February, he was named by police as a witness in a bribery investigation against Israeli Prime Minister Benjamin Netanyahu.
But even before that scandal broke, he told The Australian newspaper "it has been a tumultuous four or five years for me".
"I've got China falling apart, the Australian casino businesses missing budgets by big amounts, Ive got Mariah breaking up with me... " he was quoted as saying during an interview at his Ellerstina ranch in Argentina in October.
Packer forged Crown by selling the media empire that made his family's fortune to private equity firms a decade ago and buying casino interests from Vegas to Macau.
"The departure of Mr Packer's clearly not a positive for Crown. He's been a significant contributor to strategy in particular over the years," said Michael McCarthy, Chief Markets Strategist at brokerage CMC Markets.
"But at the same time this is a very strong board and executive team ... it's not a disaster."
Keeping such a large stake in Crown, an investment currently valued at about A$4.2 billion, has driven rumours that Packer intends to take it private.
Angus Gluskie, a portfolio manager at White Funds Management, which owns Crown shares, said Packer's departure would remove a conflict of interest should he launch a buyout bid.
"It's been regularly rumoured, but I can't quite see it at the moment," he said.
Crown has also recently battled several unproven claims of poker machine fixing and encouraging problem gambling at its flagship Melbourne casino.
The company was hit with a class-action lawsuit in December for allegedly failing to inform shareholders of the marketing campaign in China, which ultimately resulted in the staff arrests.
($1 = 1.3009 Australian dollars) (Reporting by Tom Westbrook in Sydney and Nicole Pinto in Bengaluru Editing by Stephen Coates)