UK stocks : FTSE 100 down 0.6 pct

BAE fell 1.4 percent in heavy volume after its 45 billion merger talks with Airbus parent EAD.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 that had limited new selling of the company8217;s shares.

This does not come as a surprise 8230; For BAE Systems,the investment case returns to extracting value in a squeezed operating environment,Brewin Dolphin8217;s equity analyst Ed Salvesen said in a note.

The broader FTSE 100 has traded in a 170-point range since mid-September when the U.S. Federal Reserve joined the European Central Bank in providing a backstop for the market by promising measures to tackle the economic slowdown.

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

Central bank promises of more bond buying has certainly been one of the chief reasons we have seen risk on,Atif Latif,director of trading equities and derivatives at Guardian Stockbroker said. On the back of poor economic data we see no reason in the short term to be bullish on the market.

A struggling global economy has left companies struggling to raise profits and the start of the third-quarter results season confirmed that picture.

With U.S. firms first up the ramp,Aluminium maker Alcoa lowered its global aluminium consumption outlook for 2012 on waning demand from China,while U.S. oil firm Chevron Corp warned its third-quarter profits would be substantially lower than the previous quarter.

Those results weighed on the commodity driven mining and integrated oils sectors.

Energy companies8217; earnings in Europe are expected to contract around 0.4 percent in Q3,while the miners earnings are anticipated to fall more than 20 percent,quarter-on-quarter,according to Thomson Reuters Starmine data.

OUTLOOK RISK

Risks to forecasts were among a number of reasons Societe Generale restarted coverage on the orthopaedics firm Smith amp; Nephew with a sell rating.

Soc Gen also cited an unappealing valuation and an Mamp;A overhang as Smith amp; Nephew8217;s shares,which also traded ex-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 Britain8217;s Financial Services Authority was relaxing capital and liquidity rules in an 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 the regulator,that8217;s breathing space for these banks,which in the short term is good for the shares. Longer term I stay very cautious,said Chirantan Barua,senior analyst at Bernstein Research.

Man Group rose 3.8 percent,but was off session highs,amid newspaper speculation that a U.S. bidder will soon come calling for the fund manager,with talk that 9.35 percent shareholder Blackrock and others could be lining up a 140 pence a share cash bid.

Our opinion regarding a takeover of Man Group remains unchanged despite the press report: it is possible but remains unlikely,RBC said in a note.

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