FTSE heads for worst week in 6 months, grocers slip

* Blue-chip FTSE 100 index falls 1 pct

* Vodafone shares fall as Liberty merger ruled out

* Caution after Greek payment delay, ahead of U.S. Jobs (Adds detail, quote)

By Atul Prakash and Alistair Smout

LONDON, June 5 (Reuters) - Britain's top share index fell on Friday and was heading for its worst weekly performance in nearly six months, mirroring a broad sell-off in Europe, with some food retailers losing ground after Deutsche Bank (Xetra: 514000 - news) cut its estimate for the UK grocery market.

The FTSE 100 hit an intra-day low of 6,785.15 points, the lowest level in two months. The index was down 2.7 percent so far, its poorest weekly showing since mid-December.

Food retailers were among the top British decliners, with Morrison and Tesco (Xetra: 852647 - news) falling 2.3 percent and 0.8 percent respectively after Deutsche Bank cut its target price for Morrison to 180 pence from 210 pence and for Tesco to 240 pence from 275 pence.

"We've seen no improvement in UK grocery market growth since the tentative rebound experienced (in) December and January faded ... We lower our calendar 2015 estimate for UK market growth from 1.5 percent to 1.0 percent," Deutsche Bank said.

Vodafone Group (Swiss: VOD.SW - news) fell 2.3 percent, after opening higher, as the world's second-biggest mobile operator put an end to speculation that a merger with Liberty Global (NasdaqGS: LBTYA - news) . was on the cards, and said it was considering only an exchange of selected assets.

Vofadone has been supported in recent weeks by speculation that a fully fledged merger might occur. While that has been dashed, some analysts welcomed the asset swap as a more practical solution.

"We have long argued that a LBTYA acquisition of Vodafone, or indeed vice versa, was fraught with complications," RBC (Other OTC: RBCI - news) said in a note.

The blue-chip FTSE 100 index was down 68.44 points, or 1 percent at 6,790.80 points by 1052 GMT, in line with weaker European share indexes after Greece delayed a debt payment.

Investors also traded cautiously ahead of a widely-watched U.S. employment report due at 1230 GMT.

Greece delayed the payment to the International Monetary Fund due on Friday as Prime Minister Alexis Tsipras demanded changes to tough terms from international creditors for aid to stave off default.

"The payment delay further raises concerns about a possible debt default by Greece and increases chances of its exit from the euro zone," Securequity trader Jawaid Afsar said.

"Investors are playing safe and staying cautious ahead of U.S. jobs data."

According to a Reuters survey, U.S. job growth was likely solid in May and wages probably picked up a bit, suggesting sufficient momentum in the economy for the Federal Reserve to raise interest rates later this year. (Editing by Mark Heinrich)