FTSE toils as BAE Systems merger fails

* FTSE 100 down 0.6 percent

* US earnings highlight growth toils

* IMF urges Europe to do more to boost sentiment

* BAE, EADS merger failsBy David Brett

LONDON, Oct 10 (Reuters) - Global growth worries proddedBritain's top share index lower on Wednesday as a failed mergerwith a French peer hurt shares in defence and aviation firm BAESystems.

London's blue chip index

closed down 33.54 points,or 0.6 percent, at 5,776.71 as volumes on the index remainedlight as whole, just 88 percent of its already weak 90-dayaverage.

BAEfell 1.4 percent in heavy volume after its $45billion merger talks with Airbus parentEAD.PA collapsed,and it said it is not looking for a tie-up with another company.

Analysts said the deal had always looked a big ask and thathad limited new selling of the company's shares.

"This does not come as a surprise ... For BAE Systems, theinvestment case returns to extracting value in a squeezedoperating environment," Brewin Dolphin's equity analyst EdSalvesen said in a note.

The broader FTSE 100 has traded in a 170-point range sincemid-September when the U.S. Federal Reserve joined the EuropeanCentral Bank in providing a backstop for the market by promisingmeasures to tackle the economic slowdown.

But the boost that gave to broader global sentiment and theeuro zone in particular is fading. The International MonetaryFund warned European policymakers late on Tuesday they must todo more and with some urgency to restore sagging confidence inthe global financial system.

"(Central bank promises of more) bond buying has certainlybeen one of the chief reasons we have seen risk on," Atif Latif,director of trading equities and derivatives at GuardianStockbroker said. "On the back of poor economic data we see noreason in the short term to be bullish on the market."

A struggling global economy has left companies struggling toraise profits and the start of the third-quarter results seasonconfirmed that picture.

With U.S. firms first up the ramp, Aluminium maker Alcoa

lowered its global aluminium consumption outlook for 2012on waning demand from China, while U.S. oil firm Chevron Corp

warned its third-quarter profits would be "substantiallylower" than the previous quarter.

Those results weighed on the commodity driven mining

and integrated oilssectors.

Energy companies' earnings in Europe are expected tocontract around 0.4 percent in Q3, while the miners earnings areanticipated to fall more than 20 percent, quarter-on-quarter,according to Thomson Reuters Starmine data.


Risks to forecasts were among a number of reasons SocieteGenerale restarted coverage on the orthopaedics firm Smith &Nephew

with a "sell" rating.

Soc Gen also cited an unappealing valuation and an M&Aoverhang as Smith & Nephew's shares, which also tradedex-dividend, fell 2.6 percent.

UK-focused banks clung onto gains. Lloyds Banking Group

was up 4 percent and Royal Bank of Scotland

added 2.1 percent after an FT report that Britain's FinancialServices Authority was relaxing capital and liquidity rules inan effort to stimulate the economy.

"(RBS and Lloyds) are the two banks which are most exposed,along with Barclays. If they get a bit of leeway from theregulator, that's breathing space for these banks, which in theshort term is good for the shares. Longer term I stay verycautious," said Chirantan Barua, senior analyst at BernsteinResearch.

Man Group

rose 3.8 percent, but was off sessionhighs, amid newspaper speculation that a U.S. bidder will sooncome calling for the fund manager, with talk that 9.35 percentshareholder Blackrock and others could be lining up a 140 pencea share cash bid.

"Our opinion regarding a takeover of Man Group remainsunchanged despite the press report: it is possible but remainsunlikely," RBC said in a note.

"These press reports have persisted for years. We do not seethe logic of acquiring a company whose funds, in our opinion,are underperforming key benchmarks and are experiencing netoutflows," it said.

(editing by Patrick Graham)


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