* Commerzbank jumps on report UniCredit eyeing bid
* Saga at all-time low after dour forecast, div cut
* German industrial orders slump in Feb
* UK hints at longer Brexit delay(Adds detail, quote; Updates prices)
By Medha Singh and Agamoni Ghosh
April 4 (Reuters) - A rally in European shares stalled onThursday near the eight-month high reached the previous day,with banking mergers in focus while investors awaited moredevelopments in U.S.-China trade talks.
At 0920 GMT, the pan-European STOXX 600 index wasdown 0.35 percent, having risen more than 3 percent in the pastfour sessions on hopes that a U.S.-China trade deal could beimminent after both sides reported progress.
Most major bourses in the region were in the red; only Spaineked out gains.
Commerzbank shares rose about 3 percent as therace to acquire the German lender heated up. Two people withknowledge of the matter told Reuters that UniCreditcould explore a merger with Commerzbank if talks with DeutscheBank fall through.
But they said UniCredit would not crash theCommerzbank-Deutsche talks, and UniCredit's focus for now was onits turnaround plan.
The news could rekindle expectations of furtherconsolidation in the battered European banking sector,which has underperformed the STOXX 600 this year.
"UniCredit is probably the best acquirer for a bank likeCommerzbank because it has a good restructuring track record inGermany," KBW analysts wrote in a note.
"But in theory it could be complicated, particularly fromthe capital point of view."
Dampening sentiment was data out of Germany that showed anunexpected drop in industrial orders in February, hit by a slumpin foreign demand. Germany's leading economic institutes alsocut their forecasts for 2019 growth by more than half onThursday.
Losses in heavyweight BP and Shell weigheddown the oil and gas sector, while basic resourcesstocks slipped after seven straight sessions of gains.
Sharp falls in financial stocks Lloyds, Direct Lineand St James's Place, which traded ex-dividend,also weighed down Britain's FTSE 100.
The exporter-heavy index also continued to be pressured by arise in sterling, boosted by hopes of progress or at least alonger Brexit delay as Prime Minister Theresa May seeks a jointapproach with opposition leader Jeremy Corbyn to end aparliamentary deadlock.
Saga Plc shares crashed nearly 30 percent, oncourse for their worst daily performance, after the over-50stourism and insurance firm forecast lower annual underlyingpretax profit and cut its dividend as it struggles to keep up ina competitive motor and home insurance sector.
Steel maker Thyssenkrupp fell nearly 3 percent asworkers demanded substantial guarantees for jobs and plants evenif a planned joint venture with India's Tata Steelfalls apart.
The French supermarket chain Casino fell about 5percent, hit by a Morgan Stanley downgrade, a day after Moody'scut its credit rating on growing concerns about the firm's debt.
Among bright spots, UDG Healthcare led gains on theSTOXX 600 and the UK's midcap index after Barclaysupgraded the stock to "overweight" from "equal weight".
Shares in British home repairs provider HomeServe Plcalso advanced after forecasting full-year adjustedpretax profit at the upper end of market expectations.(Reporting by Medha Singh and Agamoni Ghosh in Bengaluru,additional reporting by Helen Reid; Editing by Kevin Liffey)