UPDATE 1-RESEARCH ALERT-UBS raises Merrill Lynch to buy

(Changes source, adds details)

Aug 6 (Reuters) - UBS upgraded Merrill Lynch & Co. Inc. MER.N to "buy," saying dislocations in the mortgage and credit businesses and potential follow-on effects across the industry are mostly discounted in the global investment bank's valuation.

"The 12-month risk/reward is increasingly attractive, though we realize we may be a bit early," UBS analysts said in their research note.

UBS said Merrill had become a lot more diversified by product and geography and offers stability with a third of earnings coming from the asset and wealth management businesses,and on strong non-U.S revenue growth.

UBS, however, cut its earnings estimate and price target on Merrill to reflect difficult conditions in the fixed income market.

UBS lowered Merrill's 2007 earnings per share estimate to $8.46 from $8.55 and that for 2008 to $8.25 from $9.00.

The Merrill price target was reduced to $86 from $98, based on 1.7 times the revised forward book estimate, down from 2.0 times, UBS said in its note.

Merrill shares were trading up over 1 percent at $71.14 in morning trade on the New York Stock Exchange. (Reporting by Bhaswati Mukhopadhyay in Bangalore)