BUZZ-Resource stocks squeezed as shorts book China-related profits

** Oil and resources stocks extend gains in afternoon trading to top Stoxx 600, with traders citing short-covering in names damaged by China's equity plunge

** Basic resources & oil and gas sectors move to trade among best performers

** Oil service names recovering from sharp falls seen on Tuesday when spot prices deteriorated

** Seadrill (Stockholm: 63641.ST - news) up 7.4 pct, Outokumpu (Helsinki: OUT1V.HE - news) 4.5 pct, Subsea, Saipem (Other OTC: SAPMY - news) , ArcelorMittal (Other OTC: AMSYF - news) , PGS, Amec Foster Wheeler (Other OTC: AMCBF - news) , Glencore (Xetra: A1JAGV - news) , Fugro (Xetra: F3D.DE - news) , Galp, Premier Oil (LSE: PMO.L - news) , TGS and Cairn Energy (LSE: CNE.L - news) all up > 3 pct, dominating Stoxx leader board. Chart: http://link.reuters.com/xeg25w

** Majority of stocks mentioned have high utilisation rates of shares available to borrow, according to Markit (NasdaqGS: MRKT - news) , suggesting elevated short interest

** Hedge fund trader at a bulge bracket bank says that despite poor fundamentals, "gap risk" from possible consolidation and market's consensus underweight make mining sector dangerous to short

** Second trader says turnaround in Chinese equities also helping -- Hang Sang H-share futures up 1.7 pct, partial recovery after the index fell 5.8 pct on the spillover from China's messy sell-off (biggest one-day drop since 2008)

(RM (LSE: RM.L - news) : alasdair.pal.thomsonreuters.com@reuters.net)