-1x Boeing Share News (BAES)

* UAE deal would underpin thousands of British jobs

* BAE shares biggest faller in benchmark index

* Fierce competition for Gulf deals as global market shrinks

* Not all analysts see UAE news as major setback (Adds analyst, background on UAE fighter needs)

By Paul Sandle and Sarah Young

LONDON, Dec 20 (Reuters) - BAE Systems facedconcerns over its growth prospects on Friday after the UnitedArab Emirates pulled out of talks to buy 60 Eurofighter Typhooncombat jets, in a blow to the UK government which had pushedhard to land the $9.8 billion deal.

The decision could boost the prospects of French companyDassault Aviation, which sells the rival Rafale plane,although that company has also suffered setbacks in along-running and unpredictable UAE fighter contest.

The Eurofighter snub punctures Britain's hopes of a dealunderpinning thousands of jobs after Prime Minister DavidCameron travelled to the UAE last month to lobby for theEurofighter Typhoon contract, which BAE had said could be a"major game-changer".

However, BAE said in a statement it had not factored thecontract into its business plans.

Shares in BAE, Europe's biggest defence firm, fell 4.8percent, making it the biggest faller in Britain's blue-chipFTSE 100 index. The announcement came after the marketclose on Thursday, when the shares had finished up 1.8 percent.

Fighter jet exports to regions such as the Middle East havebecome increasingly important to defence contractors such asBAE, which are facing declining military spending from theirbiggest customers in the United States and Europe.

The UAE's decision to abandon the talks was the second upsetin the global fighter market in as many days after Brazilrejected offers from the United States and France and opted forSweden's smaller but cheaper Gripen fighter.

Analysts said Britain's refusal to endorse military strikesin Syria after opposition in the UK parliament and itswillingness to engage with Iran over a possible deal on itsnuclear activities may have weighed against a deal.

"My sense is that the proposition is reasonably robust so Iwouldn't be surprised if they were to come back to the table,"said John Louth, director for defence, industries and society atthe Royal United Services Institute in London.

"Having said that it looks as if decision makers in AbuDhabi are disappointed with perhaps the UK's stance in relationto the Middle East and that goes beyond the industrialproposition. That's more to do with politics and reputation."

Investec analyst Chris Dyett said the UAE deal had been oneof the largest available to BAE, which negotiates in the MiddleEast on behalf of other Eurofighter consortium partners EADS and Italy's Finmeccanica.

"It's going to be difficult for this company to grow," hesaid when asked about the impact on BAE of the UAE decision.

Analysts at JP Morgan Cazenove called it a major setback forBAE Systems, noting the contract could have been worth around 45pence per BAE share.

BAE shares are now trading below their level when theaerospace industry gathered for the Dubai Airshow amidexpectations of a Typhoon deal in November.

Thinly-traded shares in Rafale manufacturer DassaultAviation rose over 2 percent. The company did notrespond to requests for comment.

DASSAULT PROSPECTS BRIGHTEN?

Dassault had been seen as the leading contender to win theUAE contract until it was publicly criticized by Abu Dhabi overthe Rafale aircraft's price two years ago.

"It's difficult to see how it can be bad news for Dassault,although it is not clear whether this is a halt of the wholeprocess or just for Typhoon," UBS analyst Charles Armitage said.

Experts who monitor UAE arms procurements have suggested theGulf Arab state could wait a few more years to see if it can getLockheed Martin's next-generation F-35 Lightning II.

One reason the UAE went initially for the Rafale to replaceits fleet of 60 Mirage 2000-9 is that the French planes havestand-off capabilities which allow them to fire air-to-groundcruise missiles.

U.S. planes currently exported to the Gulf state comewithout such capabilities due to strict arms controls rules anda long-held policy of giving Israel a qualitative militaryadvantage in the region.

A senior U.S. defence official told Reuters this month thatGulf demand for the F-35 was prompting Washington to review F-35sales to the region sooner than expected.

Meanwhile, BAE Systems also said it had still not reachedagreement with Saudi Arabia over the pricing of Eurofighter jetsin an earlier deal.

The continued delay of the so-called Salaam deal has pushedBAE to repeatedly trim its full-year earnings forecasts, and JPMorgan Cazenove called the failure to reach a deal perplexing.

But not all analysts are worried about the pricing delay.

"Does it really matter if it drops into 2013 or 2014? Theimportant part is it gets signed and it gets signed at anappropriate level of profitability to BAE," Armitage said. ($1 = 0.6111 British pounds) (Additional reporting by Praveen Menon, Mahmoud Habboush,Andrea Shala-Esa; Editing by Tim Hepher and Tom Pfeiffer)