UPDATE 1-Anheuser-Busch says will stop selling Spykes

(Recasts with company comment, background, stock activity; previous NEW YORK)

LOS ANGELES, May 17 (Reuters) - Anheuser-Busch Companies Inc. (BUD.N) said on Thursday it has stopped making its Spykes drink, a flavored malt beverage that appealed to underage drinkers and was 12 percent alcohol by volume -- two to three times higher than beer.

The St. Louis company said Spykes has not performed up to expectations since its nationwide release in January.

"Due to its limited volume potential and unfounded criticism, we have ceased production of Spykes," Anheuser-Busch said in a statement, in which it added that Spykes was the lowest alcohol content product in its market segment.

Advocacy groups and more than two dozen state attorneys general accused the company of targeting underage drinkers with its Spykes advertising and brightly colored packaging. Some referred to Spykes as a youth starter drink.

Connecticut Attorney General Richard Blumenthal called Anheuser-Busch's decision to cease sales of Spykes a significant victory in the fight against underage drinking.

"Spykes, and similar caffeinated, alcoholic drinks, are double trouble, the alcohol and caffeine combine to create a high-energy rush with the illusion of alertness even though drinkers are actually impaired.

"Spykes especially appealed to children in taste, packaging and marketing, its caffeine, fruit and chocolate flavors and tiny, hip bottles that are easily hidden and affordable, readily sneaked into proms, movie theaters, or parties without parental knowledge," Blumenthal said in a statement.

August Busch IV, Anheuser-Busch's chief executive since December, announced the Spykes decision at the National Alcohol Beverage Control Association's annual conference in California.

Shares in Anheuser-Busch fell 1.2 percent to $49.68 on the New York Stock Exchange and were unchanged in extended trade.

((Reporting by Mark Porter in New York and Lisa Baertlein in Los Angeles; Reuters Messaging: lisa.baertlein.reuters.com@reuters.net; mail to:lisa.baertlein.reuters.com@reuters.net; editing by Carol Bishopric; +1 213 955 6742)) Keywords: ANHEUSER SPYKES

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