Speed, aged 42, was found hanged at his home in the early hours of Sunday, according to Cheshire Police, who added in a statement that no suspicious circumstances surrounded the death.
NEWS:Gary Speed found dead at home
Dalglish, who was playing for Liverpool on the night of the Heysel Stadium disaster in 1985 when 39 Italian fans died, and was manager of the club when 96 Liverpool fans died in the Hillsborough Stadium disaster four years later, said he had taken the decision to allow Bellamy to miss the match.
"At times like this, football does become a little bit irrelevant," Dalglish told Sky Sports before the match against City.
"It was best for me to make the decision for Craig today. He was very, very close to Gary, who was almost a mentor for him, someone he admired and looked up to, and he was upset.
"There's no way that a game of football is more important than grief - and that was the decision I made."
Dalglish signed Speed from Everton when he was manager of Newcastle in 1998 and added: "He did a fantastic job for Newcastle, during the time I was there and after I left as well.
"He was a smashing lad, he was very well respected and there are a lot of people in football saddened by what has happened. But at this time the most important people are his wife and kids and they must be absolutely devastated."
SPONTANEOUS APPLAUSE
Thousands of fans burst into spontaneous applause during a minute's silence in Speed's honour when Welsh club Swansea City played Aston Villa in a Premier League game at Swansea's Liberty Stadium not long after the news of his death was announced, and thousands more paid their respects on Twitter and other social websites.
A minute's silence was held at Anfield following the recent death from leukaemia of Liverpool goalkeeper Brad Jones's five-year-old son Luca, as well as to mark Speed's death.
Former Wales team-mate Ryan Giggs said: "I am totally devastated. Gary Speed was one of the nicest men in football and someone I am honoured to call a team mate and friend.
"Words cannot begin to describe how sad I feel at hearing this awful news. It goes without saying my thoughts are with his family at this tremendously sad time."
Another former Wales team-mate, Robbie Savage, tweeted: "The world has lost a great man in Gary Speed I'm devastated spoke to him yesterday morning Why! Why. Why!! I'll miss him so much."
Savage, who retired last season and is taking part in the Strictly Come Dancing celebrity competition on television, added: "He came to watch Strictly 3/4 weeks ago. I high-fived him in the front row, he loved the show. He loved life he loved his family. Devastated".
Former England striker Alan Shearer, who played alongside Speed at Newcastle for six years between 1998 and 2004, said: "Gary was a magnificent person, bright, fun and a wonderful
