PIA Local Controller described near conflict event when C130 traffic conducting a special overhead procedure failed to comply with issued sequence and could not see traffic sequenced ahead.

Narrative

While setting up for an overhead to Runway 13 a C130 was climbing up to 3500 MSL. This was about their 5th or 6th of these maneuvers and the other times the aircraft maintained above 3000 MSL until starting the overhead decent. When entering the pattern to make right traffic the aircraft was given a traffic (with altitude) call for a King Air VFR at 2400 landing Runway 13. The C130 read back the traffic call and exclaimed that they were searching for the King Air. The C130 climbed to its initial altitude of 3400 and at a distance of 5 miles the C130 was given the traffic again (and again with altitude). As the Local Controller I had visual on both aircraft and was providing visual separation. The two VFR aircraft continued to merge with one thousand feet vertical separation between the two. The C130 repeated still looking; and then began a descent. There was no clearance to land or to start the procedure. A third traffic call was given for traffic one half mile and same altitude although the two aircraft were still one mile and over 500 FT apart. The C130 then stopped the decent and started a slow climb. The C130 pilot asked if they were number one for the airport and I repeated negative continue downwind I'll call your base. The C130 never reported seeing traffic and the King Air landed with no disruption of flight. Recommendation; requirement for aircraft in the pattern to not descend if above pattern altitude until cleared for the maneuver or approach. Giving the sequence to the second aircraft so they were on the 'same page' as me would have helped but was not given because the C130 did not have traffic in sight.