UPDATE 2-LSE in talks to buy Russell to expand in U.S. stock indices
* In talks with Northwest Mutual to buy Russell Investments
* Russell's indices business could fetch over $2 billion
* LSE says any deal would be part funded by rights issue
* LSE shares fall 2.5 percent (Adds analyst comment, background, shares)
By Freya Berry and Clare Hutchison
LONDON, May 13 (Reuters) - The London Stock Exchange (LSE) is in talks to buy Seattle-based Russell Investments in a deal that would expand its stock index business in the United States, the world's largest equities trading market.
The LSE, which owns FTSE International financial indices, said on Tuesday any deal would be part funded by selling new stock to its existing shareholders.
Analysts estimate Russell Investments, which owns the Russell 1000 Global Index for stocks, could fetch over $3 billion. However, they think the LSE would only be interested in its indices business, and not its asset management arm, which could cut the potential price tag by around $1 billion.
"They (the LSE) are improving their footprint in the U.S. and this would be a challenge to MSCI," said Espirito Santo Investment Bank analyst Phil Dobbin, referring to U.S. index provider MSCI, which is also interested in Russell. Continued...