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 not extend their merger talks later on Wednesday, calling an end - for now - to a plan to create the world's largest defence and aerospace group.

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

In a statement, BAE said it had become clear that the interests of the French, British and German governments could not be adequately reconciled with each other or with the objectives that BAE and EADS established for the merger.

"BAE Systems and EADS have therefore decided it is in the best interests of their companies and shareholders to terminate the discussions and to continue to focus on delivering their respective strategies," it said.

Securing such an enormous and complicated cross-border deal in a sector where commercial considerations are typically trumped by political, economic and national security concerns was always going to be desperately difficult.

Several sources close to the negotiations said German Chancellor Angela Merkel had opposed the proposal to combine Airbus passenger airplanes with UK defence contractor BAE.

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

A spokesman for the German government had declined to comment.

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

Brinkmanship is common in European negotiations, and Franco-German-led EADS - whose full title is the European Aeronautic Defence and Space Company - was itself only created after talks about its structure collapsed and were resurrected weeks later.

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

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

Keywords: EADS BAE/