UPDATE 1-Ferrovial spurned GIP bid for Gatwick -sources

* BAA rejected bid by infrastructure fund GIP -sources

* GIP could return with fresh offer -source

* Manchester Airports Group still working on bid -source

* Academic's pension-fund links fully disclosed, spokesman says

(adds comment from Leeds University)

By Quentin Webb and John Bowker

LONDON, May 19 (Reuters) - BAA recently rejected a bid by Global Infrastructure Partners to acquire Gatwick airport, two people familiar with the matter said on Tuesday, boosting the prospects of rival bidder Manchester Airports Group (MAG).

However, one of the people said BAA continued to talk with GIP, and the fund could return with a sweetened offer for Britain's second-biggest airport. GIP is a fund founded by Credit Suisse (CSGN.VX) and General Electric (GE.N).

On Monday, BAA said it would appeal an order by competition regulators to sell three airports, including Gatwick and Stansted in London but said the sale of Gatwick, which it began preemptively, continued. [ID:nLI18201]

The airports operator, majority owned by Spain's Ferrovial (FER.MC), said the regulators' ruling was "affected by apparent bias" and did not take into account tough economic conditions.

The rebuff to GIP strengthens the hand of a bidding group comprising MAG, Canada's Borealis, and the Greater Manchester Pension Fund -- even though BAA's "bias" complaint centres on academic Peter Moizer's links to both the Competition Commission and the Manchester pension fund.

A spokesman for Leeds University, where Moizer is dean of the business school, said: "Professor Moizer's involvement with the Greater Manchester Pension Fund was fully and openly disclosed at the beginning of the BAA inquiry."

The spokesman said it would be "inappropriate" for Moizer to comment further but noted that the Competition Commission planned to defend the case vigorously.

A third person familiar with the matter said MAG's team continued to work "flat out" on its bid, and hoped to tie up financing and other details by the end of the month.

Bidders have struggled to line up enough debt financing but last week's ejection of a third bidder, the Citi Infrastructure Investors vehicle Lysander Gatwick Investment Group, may free up banks to back rival bids.

Earlier this month, a person familiar with the matter said Lysander's bid was just 1.18 billion pounds ($1.83 billion), way below the 1.6 billion so-called "regulated asset base" of Gatwick.

BAA, Ferrovial, MAG and GIP declined to comment. (Editing by Dan Lalor and David Cowell)