European shares drop sharply; traders cite China regulation concerns

* FTSEurofirst 300 down 1.3 pct

* China trading clampdown hits futures and rocks Europe

* Options expiry and Bloomberg outage add to volatility

* SKF slumps after it forecasts flat demand (Adds quote, updates prices)

By Alistair Smout and Francesco Canepa

LONDON, April 17 (Reuters) - European shares dropped on Friday, with traders pointing to weakness in Chinese futures markets as one of the drivers on a trading day also marked by an outage on Bloomberg financial terminals.

The FTSEurofirst 300 was down 1.3 percent at 1,614.09 points by 1359 GMT. The Frankfurt DAX was down 1.8 percent, with some traders also pointing to the expiry of futures and options on European indexes as a factor exacerbating market volatility.

Traders said weakness in Chinese futures markets fuelled the drop in Europe and was related to market chatter about further regulatory changes on trading in China, including a clampdown on margin trading.

"The securities regulator is encouraging short-selling to institutional investors, and they are going to stop margin trading on OTC," Ioan Smith, managing director of KCG Europe, said.

"Traders had to catch up with that news after the Bloomberg terminals came back online, and that's when we saw the falls in Europe."

Bloomberg said: "Significant but not all parts of our system experienced a disruption today. There is no indication at this point that this is anything other than an internal network issue."

Some investors also cited concern over Greece's stand-off with international lenders. Greece's ATG index fell 3 percent.

Disappointing corporate reports also hindered the market, with shares in bearings maker SKF down 7.5 percent after the Swedish company forecast flat demand for its products in the second quarter.

Crop chemicals group Syngenta (Xetra: 580854 - news) declined by 4.5 percent after reporting lower sales, hit by low commodity prices, a strong dollar and a prolonged winter in the United (Shenzhen: 000925.SZ - news) States.

"The currency drag on sales was the primary reason for the headline miss," analysts at Credit Suisse (NYSE: CS - news) said in a note, adding that the numbers were below consensus estimates.

SKF and Syngenta were among the worst performers on the pan-European FTSEurofirst 300 index, which has risen around 18 percent since the start of 2015.

The drop in the market saw the index down 1.9 percent since Monday, set for only its second weekly fall since the end of January.

Britain's FTSE 100 fell 1 percent to 6,992.50, down 1.4 percent for the week.

French electronic systems company Thales (Paris: FR0000121329 - news) edged 0.4 percent higher after Goldman Sachs (NYSE: GS-PB - news) raised its rating on the company to "buy" from "neutral".

Europe bourses in 2015: http://link.reuters.com/pap87v

Asset performance in 2015: http://link.reuters.com/gap87v

Today's European research round-up

(Editing by Robin Pomeroy)