UPDATE 3-Amazon extends food tie-up with British supermarket Morrisons

* Morrisons, Amazon to "explore new opportunities"

* Says takeover talk "pure speculation"

* First half profit rises 5.3%, Q2 sales dip 1.9%

* Forecasts improved retail sales in second half

* Shares up 4%, FTSE 10O index's biggest riser (Recasts with CEO comment, Amazon, updates shares)

By James Davey

LONDON, Sept 12 (Reuters) - Amazon and Morrisons have agreed to extend a partnership which already allows customers to order their shopping from the smallest of Britain's big four supermarket groups and have it delivered by the U.S. online giant.

Periodically mooted as a possible bidder for Morrisons, Amazon has been slowly extending its food service in Britain, but market research firm Kantar Worldpanel estimates its market share is so far less than 1%.

The new Amazon agreement was for "a number of years rather than on a rolling basis, and will be exploring new opportunities to innovate and improve the shopping experience," Bradford, northern England, based Morrisons said.

Morrisons, which has a 10.1% market share, trails market leader Tesco, Sainsbury's and Walmart's Asda in annual sales.

It first tied up with Amazon in 2016 with a wholesale supply deal, whose scope has grown. In June the companies agreed to expand the "Morrisons store on Prime Now" service to more cities across Britain, including Glasgow and Newcastle.

Doug Gurr, Amazon's UK country manager, said its relationship with Morrisons was an important part of its UK grocery growth plan.

Customers can already order a full Morrisons shop online, which is then picked at a local Morrisons store, and delivered by Amazon. There is also an option for one hour delivery.

Although Morrisons Chief Executive David Potts was vague on what the exploration would entail and declined to provide the agreement's duration, he said as a wholesaler to Amazon the British company could be "part of their ambitions".

"When you’re exploring, life can be a bit unclear ... We achieve capital light growth by leveraging partners' knowhow and assets," he told reporters.

Analysts have also suggested Morrisons could be a candidate for a takeover by an overseas private equity firm, given the 24% fall in its share price over the last year and the weakness of the pound making deals cheaper.

Potts said the takeover talk was "pure speculation".

BE PREPARED

Shares in Morrisons were up 4.2% at 1416 GMT after also beating expectations for first half profit and forecasting improved sales in its second half despite the threat of a no-deal Brexit, after quarterly sales fell for the first time since 2016. It also paid another special dividend.

For the six months to Aug. 4, Morrisons reported a 5.3% rise in pretax profit before one-off items to 198 million pounds ($244 million) on revenue up 0.4% to 8.83 billion pounds.

Group like-for-like sales, excluding fuel and VAT sales tax, fell 1.9% in its second quarter, having increased 2.3% in the first quarter.

Second quarter results faced a tough comparison with a year earlier, when sales were boosted by hot weather, a royal wedding and the soccer World Cup. The sales fall followed 14 straight quarters of growth.

UK consumer confidence continued to be weak but Morrisons' data had not indicated consumers were stockpiling ahead of Brexit, said Potts.

He said the group was prepared for all Brexit scenarios.

The British government's plans in the event of a no-deal Brexit warn of severe disruption to cross-channel routes, affecting the supply of fresh foods.

Morrisons has stockpiled ambient goods and packaging materials, shifted some supplies away from the main Calais-Dover route, and obtained Authorised Economic Operator status, which it hopes will speed-up border checks in the event of hold-ups.

Potts said the group would also be able to leverage its British credentials - two thirds of what it sells is British, it is Britain's No.2 producer of food, and is British farming's biggest single supermarket customer.

($1 = 0.8115 pounds) (Reporting by James Davey, Editing by Paul Sandle, Deepa Babington and Alexander Smith)