UPDATE 3-EADS, BAE call off world's biggest arms merger

(Adds end to talks)

* Companies say they have terminated discussions * Sources said Germany opposed the $45 bln aerospace merger * UK Takeover Panel deadline at 1600 GMT * BAE shares down 2.5 pct, EADS up 2.5 pct By Sophie Sassard and Jason Neely

LONDON, Oct 10 (Reuters) - EADS and BAE Systems will notextend their merger talks later on Wednesday, calling an end -for now - to a plan to create the world's largest defence andaerospace group.

With Germany holding out against it, EADS and BAESystems had until 1600 GMT to declare their intentionsand either scrap the merger, ask UK regulators for more time orfinalise their plans to create a group employing about 220,000people.

In a statement, BAE said it had become clear that theinterests of the French, British and German governments couldnot be adequately reconciled with each other or with theobjectives that BAE and EADS established for the merger.

"BAE Systems and EADS have therefore decided it is in thebest interests of their companies and shareholders to terminatethe discussions and to continue to focus on delivering theirrespective strategies," it said.

Securing such an enormous and complicated cross-border dealin a sector where commercial considerations are typicallytrumped by political, economic and national security concernswas always going to be desperately difficult.

Several sources close to the negotiations said GermanChancellor Angela Merkel had opposed the proposal to combineAirbus passenger airplanes with UK defence contractor BAE.

"Merkel is against the deal but has not given reasons," asource involved in the negotiations said.

A spokesman for the German government had declined tocomment.

At 1154 GMT shares in BAE were down 2.5 percent at 317 pencein London, while EADS shares were up 2.5 percent at 26.76 eurosin Paris.

Brinkmanship is common in European negotiations, andFranco-German-led EADS - whose full title is the EuropeanAeronautic Defence and Space Company - was itself only createdafter talks about its structure collapsed and were resurrectedweeks later.

(Additional reporting by Matthias Blamont, Arno Schuetze, PaulTaylor, Andrea Shalal-Esa and Tim Hepher; Writing by Tim Hepherand Jane Barrett; Editing by Will Waterman)

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

Keywords: EADS BAE/