UK, France make progress in EADS-BAE talks -sources

PARIS, Oct 9 (Reuters) - Britain and France have madeprogress in talks over a possible cap on state shareholdings inany merger between EADS and BAE Systems , butany deal must overcome possible opposition from Germany, sourcesbriefed on the matter said.

In a proposed compromise hammered out in several days oftalks, France would be able to increase its stake but only if anoverall ceiling on state shareholdings in the new aerospacegroup were respected.

"For this to work, it would mean breaking the link betweenthe potential future size of the French shareholding and theGerman one," a diplomatic source following the talks said.

Germany has so far insisted on parity with France and it isunclear how Berlin would react to the proposal, but a Germanopposition parliamentarian voiced pessimism about the deal goingahead in the absence of a clear political strategy.

(Reporting by Tim Hepher, Gernot Heller, Paul Taylor)

((tim.hepher@thomsonreuters.com; +33 1 49 49 54 52; ReutersMessaging: tim.hepher.thomsonreuters@reuters.net))