UPDATE 1-UK minister sees BAE/EADS statement before market open

(Adds quote from source, Hammond quote, background)

BRUSSELS, Oct 9 (Reuters) - British Defence Secretary PhilipHammond said on Tuesday he expects BAE Systems and EADS

to announce before the London stock market opens onWednesday whether to seek more time for talks on a $45 billionmerger.

"I think the companies now have a very clear understandingof the positions and the red lines of the governments involved,"Hammond told reporters at a NATO defence ministers' meeting inBrussels.

The two companies have until 1600 GMT on Wednesday to decidewhether to proceed with talks on a $45 billion merger aimed atcreating the world's largest defence and aerospace company.

A source familiar with the deal said a decision could bemade as early as Tuesday evening, but it was unclear whetherthat would be announced publicly then, or on Wednesday.

"A decision will be made tonight or tomorrow," the sourcesaid.

Hammond said he understood BAE and EADS had started boardmeetings on Tuesday evening.

"They will go on possibly for some hours and they will makethe decision whether they think that the parties are closeenough together to warrant seeking an extension of time from thestock exchange and working on the deal further," he said.

"They will make an announcement, as I understand it, beforethe London Stock Exchange opens tomorrow," said Hammond, whodiscussed the merger with his French, German and U.S.counterparts on the sidelines of the Brussels meeting.

"Our red lines are well known. All other governments willhave made their red lines known to the companies and thecompanies will have to make the decision now whether they thinkthey can bring those positions together and make this dealhappen," he said.

The plan to create a European defence and aerospace giantout of the two companies rest on a knife edge because ofdisagreements between the governments involved and criticismfrom private investors.

(Reporting by Adrian Croft in Brussels, Mohammed Abbas inLondon)