Carmakers help European stocks to recover little of lost ground

(Updates prices, adds comment)

* VW and Daimler (Xetra: 710000 - news) among top performers

* Some investors see more room for China policy boost

By Sudip Kar-Gupta

LONDON, Jan 11 (Reuters) - European shares recovered some of last week's hefty losses on Monday, helped by gains in the car sector and the potential for China to do more to prop up its slowing economy.

The pan-European FTSEurofirst 300 index rose 0.3 percent, but the previous week's 7 percent slump meant the index remains near its lowest level in more than three months.

The euro zone's blue-chip Euro STOXX 50 index advanced by 0.6 percent.

China allowed its yuan currency to strengthen for a second straight session on Monday in a move that could calm concerns over Beijing's readiness to let the currency depreciate.

The development added to doubts over Beijing's ultimate policy intent, however. It (Other OTC: ITGL - news) failed to stop investors selling Chinese shares, though some saw the move as a signal that China would work hard to support the world's second-biggest economy.

"It is reassuring to see that China is still taking steps, and will likely take more steps, to prop up its economy," said Berkeley Futures' associate director Richard Griffiths.

Matt Fernley, analyst at Haitong Research, also thought it wrong to assume that the Chinese economy would dive simply because of the recent weakness in its stock market.

"Is China really in meltdown? We think not. The market seems to be taking the view that because the A-share market is in freefall this means that China is in freefall. We do not believe this is the case," he said.

Shares (Berlin: DI6.BE - news) in European carmakers were among the best performers in Europe.

Volkswagen (Other OTC: VLKAF - news) rose 3.9 percent on news of plans to show U.S (Other OTC: UBGXF - news) . regulators that it can fix some of the diesel emissions problems that have beset the German company.

Daimler, meanwhile, gained 1.3 percent after board member Hubertus Troska said the company's Mercedes-Benz luxury brand would still have growth in China.

Gains for Spanish bank Santander after an upgrade from analysts at Exane BNP Paribas served to lift other European banking shares.

Some strategists, however, remained cautious on the near-term outlook for European shares, saying that the Chinese slowdown remained of concern.

"Clearly, equities are unlikely to keep falling in a straight line, with periodic rebounds likely. However, we believe that one should be using any bounces as selling opportunities," said JP Morgan global equity strategist Mislav Matejka.

Today's European research round-up (Editing by Keith Weir)