* Foreign Secretary reassures U.S. over impact of cuts
* Coalition wants diplomats to focus on business, trade
By Adrian Croft
LONDON, Oct 5 (Reuters) - Britain's armed forces, diplomatic network and even the BBC World Service are all likely to face cuts in the coalition government's spending squeeze, weakening Britain's influence on the world stage.
Media attention has focused on expected cuts of around 10 percent in Britain's 37 billion pound ($58.7 billion) defence budget, which will spell reductions in equipment and personnel.
But former diplomats and opposition politicians say the already lean Foreign Office budget will face further cuts, possibly spelling the closure of some overseas missions.
Foreign Secretary William Hague reassured the United States that Britain would remain an important ally following media reports that the U.S. government had told London it feared defence cuts could threaten their "special relationship".
"This country will still pack a punch in the world ... We will still have one of the largest defence budgets in the world," Hague told the BBC on Monday.
The five-month-old coalition's drive to curb Britain's record peacetime budget deficit has brought a new hard-headed economic realism to the Foreign Office.
Hague wants diplomats to focus on boosting Britain's economy by building business and trade ties, particularly with emerging giants such as China, India and Brazil.
Austerity and war fatigue have ended the interventionist foreign policy of former Labour prime minister Tony Blair, who sent British troops to Iraq, Afghanistan and Sierra Leone.
Although only a medium-sized power, Britain has always prided itself on "punching above its weight", thanks to its extensive diplomatic network, permanent seat on the United Nations Security Council, professional armed forces and nuclear arms.
A close U.S. ally, it also plays an influential role in the European Union, NATO and the Commonwealth.
SCALING BACK
But lack of cash may now force Britain to scale back its international ambitions. Most ministries must cut spending by a quarter in real terms over the next five years. The government will release details on Oct. 20.
Foreign Office-watchers believe cuts may have to be made to Britain's diplomatic network and to the BBC World Service and British Council cultural arm.
Both organisations, which help spread British influence in the world, are funded through the Foreign Office budget.
Former diplomats fear the impact of cuts after previous rounds of cost-cutting and a crisis caused by the former Labour government's 2007 decision to end a system that protected the Foreign Office budget from exchange rate fluctuations. The pound promptly fell sharply, leaving the Foreign Office with a 100 million pound annual shortfall that it was forced to plug with extra funding from reserves, cuts and asset sales.
"The fat of the diplomatic service has long gone, and you cannot wield the knife again without losing global reach and influence," a former head of the diplomatic service, John Kerr, told the House of Lords in July.
The Foreign Office has 14,400 staff working in over 260 offices in 170 countries. But at just over 2 billion pounds, its budget makes up only half a percent of government spending.
"I do think the Foreign Office is going to have to take its share of the burden (in the spending review)," said Alistair Newton, political analyst and managing director at Nomura who had a 20-year career with the Foreign Office.
"I suspect it is going to mean closure of some missions around the world," he said. These were likely to be consulates rather than embassies, but some embassies might be lost.
Jeremy Greenstock, a former British ambassador to the United Nations, said cuts to the Foreign Office budget, dating back to the early 1990s, had gone too far.
"People have got to consider how much we've spent in recent years on military activities when diplomacy should have done better," he told Reuters.
Mike Gapes, an opposition Labour politician and former chair of parliament's Foreign Affairs Committee, said the government might close a consulate or two in countries where there were several diplomatic posts, reducing Britain's global footprint.
Gapes suspects the coalition will classify more of the work done by the Foreign Office as overseas development assistance.
The cost could then be transferred to the Department for International Development's budget, which the coalition has ring-fenced, easing the pressure on the Foreign Office budget.
Hague tried to reassure critics when he appeared before a parliamentary committee last month. Small diplomatic missions could in some cases be rationalised or one embassy could serve two countries, he said.
But he added: "I am not looking to have serious further reductions in the size of that network, and I think that it would be a major national error to do so."
Hague said he hoped to reach a settlement with the World Service -- which broadcasts in English and 31 other languages -- that made it more efficient without cutting essential services. (Editing by Ralph Boulton)