* FTSE 100 down 1.2 pct
* HSS plummets after price-target cuts
* Betfair gains on merger talk (Adds retail sales data, mortgages, ECB comments)
By Liisa Tuhkanen
LONDON, Aug 26 (Reuters) - Britain's top share index fell onWednesday but recovered some of its losses by midday, as worriesover China's economy continued to weigh on equities around theworld.
Data showing an unexpected pick-up in UK retail sales and anincrease in mortgage approvals offered encouraging signals onthe domestic economy, however.
The FTSE 100 index was down 0.9 percent by 1057 GMT,recovering from earlier steeper losses. European equities werebroadly in line after European Central Bank executive boardmember Peter Praet said there was increased risk the ECB wouldmiss its inflation target and that the central bank stood readyto act if needed.
The index posted its biggest one-day rise since 2011 onTuesday after China cut interest rates to calm markets. Butinvestors quickly resumed their focus on the deterioratingoutlook for China and its impact on the global economy.ID:nL4N11067X]
Some fund managers said they were looking at buyingopportunities. Other, more short-term investors said they wereselling out of positions taken earlier in the week.
"On a short-term basis, I am willing to increase my risk andbuy. I believe the market is offering opportunities," saidMichele Patri, portfolio manager at AllianceBernstein. "Butmedium-term the situation looks complex. When you see how stocksexposed to global growth are performing, you can really see howinvestors do not have faith in the outlook."
Shares of ad group WPP fell 2.0 percent after thegroup said trading in China had been "weak" in the secondquarter compared with the first. The group reiterated it was ontrack to hit its full-year sales target, however.
Support services firm Carillion fell 2.5 percent, despitesaying it was on track for an increase in revenue this yearafter it posted a strong first half, boosted by contracts won in2014 and multiple orders secured in 2015.
Among smaller companies, HSS Hire plummeted 37percent after the tool and equipment hire company said itexpected earnings below market expectations and as Numis and JPMorgan cut their price target for the stock.
"A second profit warning within six months of the IPO hasreduced our confidence that HSS can deliver growth ratessignificantly ahead of the market," Numis said in a note.
On the upside, shares in mid-cap Betfair soared 17percent after the online gambling company and Irish rival PaddyPower said they had reached an agreement in principleon a possible merger, marking the latest in a string of possibletie-ups across the sector.
(Reporting by Liisa Tuhkanen; Editing by Dominic Evans, LarryKing)