UPDATE 4-UK's Woolworths in talks to sell stores for nominal sum

* In talks with turnaround specialist Hilco

* Hilco says talks at "very early stages"

* Shares down 32 pct at 1256 GMT

(Adds detail, Hilco comment, updates shares)

By James Davey and Mark Potter

LONDON, Nov 19 (Reuters) - Struggling sweets-to-CDs retailer Woolworths WLW.L is in talks to sell its high-street business to company restructuring specialist Hilco for a nominal sum, illustrating the pain being felt by British store groups as they grapple with the economic downturn.

Paul McGowan, Hilco's UK chief executive, said on Wednesday the company was in "very early stage" talks with the 99-year-old group, one of Britain's best known store chains.

An industry source had said the talks centred on Woolworths offloading its stores for a nominal sum.

Woolworths, which runs about 800 shops and also has a profitable DVD publishing and a distribution business, declined to comment.

Earlier, the Times newspaper said Woolworths was in talks to sell its retail business to Hilco for just 1 pound. It reported that Hilco was reluctant to take the group's pension liability, with talks focusing on the level of debt to be assumed.

"Whatever leak was made to the paper yesterday (Tuesday) is a little previous shall we say," said Hilco's McGowan, who declined to comment further.

At 1258 GMT, Woolworths shares were down 1.23 pence, or 32 percent, at 2.6 pence, valuing the group at about 38 million pounds.

In another sign of the extent of the consumer downturn British retailers Marks & Spencer (MKS.L) and Debenhams (DEB.L) are both holding pre-Christmas sales this week. [ID:nLJ299831]

Also, shares in DSG International (DSGI.L) slumped 17 percent to a new low after analysts at joint house broker Citi slashed their price target on Europe's second-biggest electricals goods retailer amid jitters ahead of interim results next week. [LJ616540]

In August, Woolworths rejected a bid approach of about 50 million pounds ($75 million) for its retail business from a consortium led by Icelandic investor Baugur and retail entrepreneur Malcolm Walker.

Analysts at Numis said the Hilco scenario looked similar to the Baugur/Walker approach, but for 1 pound not 50 million pounds.