UPDATE 4-Continental not merging with UAL; seeks alliance

(Adds UAL loss)

By Jui Chakravorty Das

NEW YORK, April 27 (Reuters) - Continental Airlines Inc (CAL.N: Quote, Profile, Research, Stock Buzz) has called off talks with United Airlines (UAUA.O: Quote, Profile, Research, Stock Buzz) because of United's weak financial condition and a feeling that a merger would risk its own financial health, a source briefed on the matter said on Sunday.

The source also said Continental is in "advanced talks" with British Airways PLC (BAY.L: Quote, Profile, Research, Stock Buzz) and American Airlines (AMR.N: Quote, Profile, Research, Stock Buzz) about a potential alliance, with plans to seek antitrust immunity.

American did not immediately return a call seeking comment and Continental was not reachable for comment. United Airlines Chief Executive Glenn Tilton, who has been a proponent of consolidation, said the company's strategy is consistent.

"Consolidation is underway - ensuring you have the right partner is everything," he said in a statement. "We will pursue all options to ensure a strong, sustainable future for our airline."

Sources had told Reuters earlier this month that United was also in serious merger talks with US Airways (LCC.N: Quote, Profile, Research, Stock Buzz).

Continental's decision comes after Delta Air Lines (DAL.N: Quote, Profile, Research, Stock Buzz) and Northwest Airlines (NWA.N: Quote, Profile, Research, Stock Buzz) said nearly two weeks ago they planned to merge and become the world's largest airline, seeking to counter skyrocketing fuel prices, a weak economy and growing competition from European carriers as trade barriers fall on trans-Atlantic travel.

Continental said on Sunday in a letter to its employees it has chosen not to merge with any other airline at this time but will continue to consider an alliance with other carriers.