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Britain's FTSE recovers some of its China losses

* 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 on Wednesday but recovered some of its losses by midday, as worries over China's economy continued to weigh on equities around the world.

Data showing an unexpected pick-up in UK retail sales and an increase in mortgage approvals offered encouraging signals on the domestic economy, however.

The FTSE 100 index was down 0.9 percent by 1057 GMT, recovering from earlier steeper losses. European equities were broadly in line after European Central Bank executive board member Peter Praet said there was increased risk the ECB would miss its inflation target and that the central bank stood ready to act if needed.

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The index posted its biggest one-day rise since 2011 on Tuesday after China cut interest rates to calm markets. But investors quickly resumed their focus on the deteriorating outlook for China and its impact on the global economy. ID:nL4N11067X]

Some fund managers said they were looking at buying opportunities. Other, more short-term investors said they were selling out of positions taken earlier in the week.

"On a short-term basis, I am willing to increase my risk and buy. I believe the market is offering opportunities," said Michele Patri, portfolio manager at AllianceBernstein. "But medium-term the situation looks complex. When you see how stocks exposed to global growth are performing, you can really see how investors do not have faith in the outlook."

Shares (Berlin: DI6.BE - news) of ad group WPP (LSE: WPP.L - news) fell 2.0 percent after the group said trading in China had been "weak" in the second quarter compared with the first. The group reiterated it was on track to hit its full-year sales target, however.

Support services firm Carillion (Other OTC: CIOIF - news) fell 2.5 percent, despite saying it was on track for an increase in revenue this year after it posted a strong first half, boosted by contracts won in 2014 and multiple orders secured in 2015.

Among smaller companies, HSS Hire plummeted 37 percent after the tool and equipment hire company said it expected earnings below market expectations and as Numis and JP Morgan (Other OTC: MGHL - news) cut their price target for the stock.

"A second profit warning within six months of the IPO has reduced our confidence that HSS can deliver growth rates significantly ahead of the market," Numis said in a note.

On the upside, shares in mid-cap Betfair soared 17 percent after the online gambling company and Irish rival Paddy Power said they had reached an agreement in principle on a possible merger, marking the latest in a string of possible tie-ups across the sector.

(Reporting by Liisa Tuhkanen; Editing by Dominic Evans, Larry King)