Benfica president Luis Felipe Vieira confirmed that despite a substantial offer being tabled from The Magpies - believed to be in the region of £8 million - no deal would now materialise.
The Portuguese outfit took the decision after making assurances to coach Jose Antonio Camacho that his squad would not be broken up this summer.
"We are going to put our efforts into a strong sporting project next year and for that we need Simao," Vieira told planetfootball.com.
"It was a demand of our coach, and so despite our difficult economic situation, we said no to the English (Newcastle United)."
In order to retain Camacho, the club also promised not to sell midfielder Petit who had been linked with Primera outfit Real Betis.
The Lisbon giants will however be looking to add reinforcements to their playing staff, with Boavista goalkeeper Ricardo close to agreeing terms with the club.
The club are also tracking Brazilian quartet Anderson Polga, Junior, Aloisio and Savio, as well as Spanish international winger Pedro Munitis.
