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British stocks fall back as Carillion crashes, Sky soars

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* FTSE 100 down 0.3 pct

* Set for second week of losses

* Carillion crumbles 34 pct on covenant breach

* Sky soars as U.S. firms interested in Fox News assets

LONDON, Nov 17 (Reuters) - British stocks fell back into the red on Friday, ending a short-lived recovery rally as takeover interest boosted Sky and construction firm Carillion plummeted after warning it would breach debt covenants.

The FTSE 100 was set for its second week of losses as a worldwide sell-off took the shine off risky assets, and Thursday's bounce proved to have little staying power.

The index was down 0.3 percent by 0900 GMT, and on track for a 0.9 percent loss on the week, tracking weakness in European markets. Mid-caps fell 0.4 percent, also set for a second week of losses.

Corporate news drove the most attention-grabbing moves, from Sky on the blue-chip index to Carillion among small-caps.

Pay-TV firm Sky shot up 3.1 percent to the top of the FTSE after sources said Comcast Corp and Verizon Communications had expressed interest in acquiring part of Rupert Murdoch's Twenty-First Century Fox Inc's assets.

"Comcast's interest in the 39 percent stake in Sky seems plausible," said Liberum analysts. "Its NBC Universal has publicly stated its interest in expanding its non-U.S. assets for a number of years and the UK is a key market for many of the U.S. media groups."

The U.S. groups' interest demonstrates Fox's stake in Sky is still seen as a valuable asset, Liberum added. Sky shares were set for their best day in nearly five months.

Downgrades and disappointing results sent the broad market lower, while materials and mining stocks fell as nickel prices sank on worries over growth in Chinese steel markets.

Anglo American, Rio Tinto and Glencore were among the biggest drags on the index.

Small-cap construction firm Carillion collapsed 34 percent after a third profit warning set it up to breach debt covenants at the end of the year.

"The Carillion horror show continues," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

"Shorts who stayed the course, even adding, will be grinning all the way to the bank, having expected already serious corporate and financial troubles to worsen," said Mike van Dulken, head of research at Accendo Markets.

Back on the FTSE 100, Mediclinic fell for a second day as investors digested the South African private hospital group's admission it had not yet reached a deal for its much anticipated takeover of Spire Healthcare Group.

Shire fell 1.5 percent after shooting up 6 percent on Thursday when rival Roche's haemophilia drug was given a black box warning by the U.S. FDA.

A downgrade from HSBC sent United Utilities down 3.7 percent, the sharpest large-cap fall. Analysts at the bank said the utility's earnings would be dented by rising inflation.

"We expect earnings to be adversely affected by the current high levels of RPI as it has 53 percent of its total debt index-linked," they wrote in a note.

(Reporting by Helen Reid; editing by John Stonestreet)