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The British bourse, which had hoped to win over Canadian shareholders of TMX by boosting its agreed $3.3 billion all-share bid with a $673.5 million special cash dividend on Wednesday, saw Maple retaliate just hours later.

Unashamedly nationalistic Maple, which is backed by 13 of Canada's largest financial firms, nudged its unsolicited cash and stock bid C$2 per share higher to C$50 a share, valuing its offer at C$3.8 billion ($3.88 billion).

With just one week to go before crucial shareholder votes on the agreed LSE deal, LSE Chief Executive Xavier Rolet is battling to secure the scale and clout the bourse needs to fight off incumbent rivals, nimble new market entrants -- and predators.

Some financiers not involved in the deal say Rolet has played his last hand. Betting against an escalating bid war, one said the prospects of securing TMX "did not look good."

"It would look bad if they raised and then raised again just a week before the shareholder vote. It would be like a game of tennis," he added.

Numis Securities analyst James Hamilton said: "I suspect the LSE shareholders will approve the deal on June 30 -- whereas it is a close call which way the TMX shareholders will go."

Analysts noted that the LSE's special dividend - 84.1 pence per LSE share and C$4.0 per TMX share - might add a welcome element of cash to the agreed offer, but it also meant the company would have to borrow to pay for it.

"The LSE dividend has nothing to do with the value of the deal, rather the dividend means only cash for shareholders and a more leveraged business. The tax benefit is the only way the dividend makes the offer more attractive," Hamilton said.

LSE AMBITIONS HANG IN BALANCE

The London and Canadian exchanges say their tie-up will create a transatlantic stock trading powerhouse with a particular specialization in minerals and raw materials companies, the existing strength of the Toronto Stock Exchange.

But critics say it would propel a key Canadian firm into foreign hands, and Maple is pitching itself as a "made-in-Canada" solution.

TMX said it acknowledged the new Maple offer and would review it.

A spokeswoman for the LSE declined to comment on Thursday. Shares in the British exchange were flat at 957 pence in midday trade, bucking a weak FTSE 250 .FTMC index. Analysts have long said the price reflects market hopes of an LSE takeover.

The exchange, which fought off the unwanted attention of bidders before Rolet took the helm just over two years ago, would be back in play if its fails to buy TMX.

"If the LSE don't get TMX then someone's probably going to come and bid for them," said one of the LSE's 50 largest shareholders.

U.S.-based exchange operator Nasdaq OMX (NDAQ.O), which failed to derail an agreed merger between Deutsche Boerse (DB1Gn.DE) and NYSE Euronext (NYX.N), has twice tried and failed with hostile LSE takeovers in the past five years.

Under the London offer, TMX shareholders will receive 2.9963 LSE Group shares for each TMX share, leaving LSE shareholders with control of 55 percent of the new company and TMX shareholders with 45 percent.

The LSE offer needs approval from provincial regulators and from federal Industry Minister Christian Paradis, who must determine if the offer is of net benefit to Canada.

(Additional reporting by Victoria Howley and Chris Vellacott)

(Editing by Kirstin Ridley and Erica Billingham)

Investors hoping for positive comments from Fed Chairman Ben Bernanke were disappointed, and that gave them a reason to sell after a four-day rally that had lifted stocks from three-month lows.

"Everyone decided that was a 'sell' signal," said Albert Meyer, portfolio manager of Mirzam Capital Appreciation Fund in Plano, Texas. "It's nothing new. We didn't expect anyone to come out and say the economy is growing."

Some analysts see range-bound trading ahead, with 1,295 seen among the S&P 500's first targets of resistance.

Bryant Evans, investment advisor and portfolio manager of Cozad Asset Management, in Champaign, Illinois, said the market could go "sideways to down" for three months as the economy takes its time to build back momentum.

Expectations about a second round of Fed stimulus last fall helped ignite an extended rally in stocks. There is some hope the Fed will conduct another round of asset buying, but most economists see it as unlikely at this time.

The Dow Jones industrial average .DJI slid 80.34 points, or 0.66 percent, to end at 12,109.67. The Standard & Poor's 500 Index .SPX fell 8.38 points, or 0.65 percent, to 1,287.14. The Nasdaq Composite Index .IXIC lost 18.07 points, or 0.67 percent, to close at 2,669.19.

The S&P 500 is down 5.6 percent from its early May high.

"The market was up four days in a row coming into today, the rally has been OK, but it hasn't shown enough strength to break the downside momentum the market has had since May," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville.

After the closing bell, Bed Bath & Beyond Inc (BBBY.O) shares rose 3.3 percent to $55.84 after the retailer posted a quarterly profit that handily topped Wall Street's expectations and boosted its full-year earnings forecast.

ADOBE SLIDES, BUT FEDEX FLIES

Weighing on tech during the regular session, Adobe Systems Inc (ADBE.O) shares slumped 6.3 percent to $30.01 a day after the software maker reported a 54 percent jump in quarterly profit, but warned of weakness in European demand.

Among the day's gainers, economic bellwether FedEx Corp (FDX.N) rose 2.6 percent to $91.44 after the shipping group reported strong fourth-quarter profit and forecast robust 2012 earnings.

In its statement, the Fed, as widely expected, said it will maintain interest rates at exceptionally low levels for an extended period. It also reiterated it was ending its $600 billion bond-buying program at the end of the month.

The central bank's policy-makers, at the end of a two-day meeting, lowered the Fed's gross domestic product forecast for 2011 to a growth rate of just 2.7 percent to 2.9 percent -- down from an April projection of 3.1 percent to 3.3 percent.

The Fed also reduced its 2012 GDP growth forecast to a range of 3.3 percent to 3.7 percent, below its previous projection.

A spate of weaker-than-expected economic data has underscored fears that the recovery is faltering, and raised worries about how the economy will fare without more support from the government.

Another indicator of pessimism: Net short positions by hedge funds on the S&P 500 have risen recently, according to Societe Generale cross-asset research.

Billionaire investor Ken Fisher said in an interview on Wednesday he believes the U.S. stock market will finish only slightly higher this year before returning to the trend of the previous two years, when prices doubled in the wake of the financial crisis in 2008.

Volume once again was lighter than normal, with just 6.2 billion shares traded on the New York, Nasdaq and NYSE Amex exchanges, compared with a daily average of 7.58 billion.

Declining stocks outnumbered advancing ones on the NYSE by nearly 17 to 12. On the Nasdaq, decliners beat advancers by about 17 to 8.

(Reporting by Caroline Valetkevitch; Additional reporting by Rodrigo Campos, Ashley Lau and Edward Krudy; Editing by Jan Paschal)

U.S. growth is slowing and the Fed is not offering any more stimulus at this point -- even after the Bank of England stunned traders on Wednesday by saying it was considering more quantitative easing.

News that China's factory growth nearly stalled in June on weakening global demand was a further signal to investors to keep trimming assets from their portfolios that are vulnerable to volatility, and perhaps also to keep gearing at a minimum.

"The key in this environment is really just low leverage," Adrian Foster, head of financial market research at Rabobank, told Reuters Television.

"We have seen sharp moves to the upside and to the downside, and then look back and see markets have been flat for a couple of months. But if you had high leverage in that period you would have been chopped out."

The Nikkei share average .N225 fell 0.4 percent, weighed down the most by technology stocks. But foreign buying of relatively inexpensive Japanese shares and strength in blue-chip stocks such as Fast Retailing (9983.T) and Honda Motor Co (7267.T) should continue to support the Tokyo equity market.

"The Fed's view was not completely surprising, therefore the Tokyo market may not fall significantly... and Tokyo shares are still undervalued," said Tsuyoshi Kawata, a senior strategist at SMBC Nikko Securities in Tokyo.

The MSCI index of Asia Pacific stocks outside Japan .MIAPJ0000PUS fell 0.8 percent, with the consumer discretionary sector, what had been practically a sure-fire bet through most of the first half, leading the decline.

The index had fallen 7.6 percent since May as of Wednesday, underperforming the 6.8 percent decline in the MSCI all-country world stocks index .MIWD00000PUS.

Chinese stocks listed in Hong Kong were down 1.1 percent on the day .HSCE, continuing to underperform the broad Hang Seng index, after HSBC's early reading of Chinese industrial activity in June came in at an 11-month low.

CROSSES OF GOLD

Gold slipped in the spot market to $1,546.15 an ounce after four consecutive sessions of gains, but was still up 8.9 percent year to date, triple the returns of the U.S. S&P 500 index.

Furthermore, gold denominated in other currencies has been on a tear in recent weeks. Gold in sterling terms reached a record high of 969.66 pounds, gold/Australian dollar climbed to the highest in a year at AU$1,474.37.

Gold denominated in the Australian dollar could be poised for a volatile breakout to as higher as AU$1,950 in the new few months.

The euro traded around $1.4300, near the middle of a trading range carved out over the past month. The looming risk of a debt default by Greece shifted back to the forefront of investors' minds, particularly after Federal Reserve Chairman Ben Bernanke said the fate of the indebted country could threaten the global financial system.

The euro fell to a session low of $1.4293, down a touch on the day. The single currency would probably have to slide below a low for the month around $1.4070 before traders would pounce on the move.

The European Union Council meets later for a two-day meeting. Though Greece is not formally on the agenda, markets will be looking for assurances from European that they have a workable plan to help Athens avoid a debt default and return to financial stability.

The dollar rose 0.2 percent to 80.45 yen, benefiting as Tokyo dealers covered bets against the U.S. currency made in anticipation the Fed would drop hints at additional monetary easing.

U.S. oil futures fell 1.2 percent to $94.21 a barrel, supported by continued flows into the dollar. Crude prices have dropped 17 percent since May as economists ratchet down growth forecasts for the world's biggest energy consumers.

(Additional reporting by Ayai Tomisawa in Tokyo; Editing by Kim Coghill)

Fed Chairman Ben Bernanke said factors weighing on the economy, such as high commodity prices, should be fleeting but warned some of the weakness could linger.

"Part of the slowdown is temporary and part of it may be longer lasting," Bernanke told a news conference after a two-day Fed policy meeting.

The U.S. central bank kept official interest rates at a historic low near zero and Bernanke signaled they will stay there through the end of the year or longer.

The Fed estimated the economy should grow 2.7 percent to 2.9 percent this year, down from a forecast range of 3.1 to 3.3 percent made in April.

It also said it sees 2012 growth in a range of 3.3 percent to 3.7 percent, lower than its previous forecast.

In a statement, the central bank said a jump in commodity prices and supply-chain disruptions from Japan's devastating earthquake had weighed on growth and pushed up prices, but that those factors should dissipate over time.

"The Fed knows it is in for a rough road ahead," said Steve Blitz, senior economist at ITG Investment Research in New York. "At this moment the Fed is just like the rest of us, on the sidelines waiting to see what unfolds."

The Fed confirmed it was ending its $600 billion bond-buying program at the end of June and reiterated it will continue to reinvest principal payments from its holdings.

By the time its latest "quantitative easing" program wraps up next week, the Fed will have pumped some $2.3 trillion into the economy.

The Fed's downbeat economic assessment weighed on stocks, which closed lower after four days of gains. Prices for U.S. government bonds were nearly flat and the dollar edged up against the euro.

"There are no hints of further easing from the Fed," said Nick Bennenbroek, head of Group of 20 forex strategy at Wells Fargo in New York. "The statement overall disappointed investors looking for more bearish language and that's why we are seeing the dollar rally a little bit."

Bernanke, in a wide-ranging question-and-answer session with reporters which touched on issues as diverse as Greece's economic woes and the size of reserves that big banks should hold, conceded that U.S. economic hopes were partly hostage to events in Europe.

"If there were a failure to resolve that (Greek debt) situation, it would pose threats to the European financial system, the global financial system, and to European political unity," he said. "So yes, we did discuss it and it is one of several potential financial risks that we are facing now."

LONG CRAWL BACK

Two years after the end of the U.S. recession, the recovery looks disappointingly weak. Employers have been reluctant to hire and the jobless rate rose to 9.1 percent in May.

The Fed on Wednesday downgraded its view of the labor market and pushed its forecast for unemployment a bit higher.

It said the jobless rate would likely average 8.6 percent to 8.9 percent in the fourth quarter of 2011. In April, it had forecast a range of 8.4 to 8.7 percent. By 2013, the Fed said joblessness would still be significantly above what it considers to be consistent with full employment.

The Fed's inflation forecast was little changed at 2.3 percent to 2.5 percent for this year, but its projection of core prices, which strips out food and energy costs, moved up to a 1.5-to-1.8-percent range from 1.3 to 1.6 percent.

Policymakers at the Fed strive to keep inflation in a 1.7-to-2-percent range and the acceleration in core prices could complicate any desire to further support the economy.

In its statement, the Fed dropped any reference to core inflation, which it characterized in April as being "somewhat low."

With the jobs outlook uncertain and home values falling, consumer spending -- which makes up around 70 percent of U.S. GDP -- has lagged. Factory activity has been sluggish as well.

The economy grew at just a 1.8 percent annualized rate in the first three months of the year. Analysts expect growth of around 2 percent in the second quarter, still not sufficient to generate a big uptick in hiring.

The economy's weakness has led to some speculation the Fed could take fresh steps to bolster the recovery.

While Bernanke did not rule anything out, he made clear the Fed does not feel the economy is in as dire a condition as it was last fall when it launched its latest bond-buying plan.

If it were pressed into action, the Fed chief said the central bank could buy more securities, lower the interest rate it pays to banks on reserves held at the Fed or even pledge to keep its balance sheet at a high level for an extended period.

Bernanke said the vow to keep interest rates exceptionally low is intended to suggest the Fed is at least two or three meetings away from a move, but that the time period could be "significantly longer" depending on the economy.

The Fed statement and press conference led more large bond firms put off expectations of rate hikes until the second half of next year.

In a Reuters poll, only five of 19 primary dealers in Treasury securities said they expect the Fed to raise rates in the first half of 2012, down from six out of 18 in a June 3 poll. (Editing by Andrea Ricci, Tim Ahmann, Diane Craft and Gary Crosse)

It also pinned a quickening of inflation largely on temporary factors, including higher commodity prices and supply chain disruptions from Japan's devastating earthquake.

The central bank said the forces pushing up prices should dissipate, allowing inflation to subside to levels consistent with price stability, even as growth revives.

"The slower pace of recovery reflects in part factors that are likely to be temporary, including the damping effect of higher food and energy prices on consumer purchasing power and spending as well as supply-chain disruptions associated with the tragic events in Japan," the Fed said in a statement at the conclusion of a two-day meeting.

As widely expected, the Fed said it will maintain interest rates at exceptionally low levels for an extended period. It also confirmed it was ending its $600 billion bond-buying program at the end of the month, while reiterating that it will continue to reinvest principal payments from its holdings.

The Fed downgraded its view of the labor market, saying it had been "weaker than anticipated." That contrasted with the statement after its last meeting in April when it said the job market was "improving gradually."

U.S. stocks dipped after the Fed's statement was released, while prices for U.S. government bonds slipped and the dollar edged higher against the euro.

"The Fed statement did not offer any real surprises, but it did confirm the job situation is much weaker than was expected," said Daniel Penrod, senior industry analyst at the California Credit Union League in Ontario, California.

"The likelihood is that because of the weakness in the jobs sector, rates are going to stay low."

LONG CRAWL BACK

Two years after the end of the U.S. recession and unprecedented attempts by the Fed to boost growth, the recovery looks disappointingly weak.

While Fed officials have persistently said they expect growth to accelerate, reports since the Fed's April meeting point to a clear loss of momentum in the world's largest economy.

Employers have been reluctant to hire and the jobless rate remains stubbornly high, climbing to 9.1 percent in May. Housing -- a central component of most U.S. families' wealth -- remains mired in a deep slump.

With jobs uncertain and home values falling, consumer spending, which makes up around 70 percent of U.S. GDP, has lagged. Retail sales declined in May for the first time in 11 months.

Factory activity has been sluggish as well.

The economy grew at just a 1.8 percent annualized rate in the first three months of the year. Analysts expect growth in the second quarter to log a rate of around 2 percent, still not sufficient to generate a big uptick in hiring.

The Fed in April forecast the economy would grow between 3.1 percent and 3.3 percent in 2011 and 3.5 percent to 4.2 percent next year. It releases fresh forecasts later on Wednesday.

Even as growth has flagged, inflation has accelerated. Consumers prices posted their biggest year-on-year gain since October 2008 last month, and so-called core prices that exclude food and energy costs have also picked up.

The Fed cut interest rates to near zero in December 2008 and is on track to buy $2.3 trillion worth of longer-term securities by the end of June to stimulate economic growth. The latest buying program -- purchases of $600 billion worth of Treasuries that is dubbed QE2 because it is the second round of what economists call quantitative easing -- ends June 30.

Analysts have in recent weeks speculated the Fed may begin to consider what other tools it has to spur economic growth. Possible steps could include further asset purchases, or a bolstering of promises to markets that easy money policies will be in place until there are clear signs the recovery is taking off.

(Editing by Andrea Ricci and Tim Ahmann)