Domino Printing leads rebound in UK shares after receiving bid

* FTSE 350, FTSE 100 up 0.3 pct

* Domino up 31 pct after Brother Industries' bid

* Cairn Energy (LSE: CNE.L - news) down 17.6 pct on Indian tax dispute

* N Brown (LSE: BWNG.L - news) hit after profit warning

By Francesco Canepa

LONDON, March 11 (Reuters) - UK shares staged a small bounce on Wednesday after their steepest fall so far this year, led by barcode-printer maker Domino Printing Sciences (LSE: DNO.L - news) after it received a takeover offer.

Shares (Berlin: DI6.BE - news) in Domino Printing surged 31 percent after the firm's board accepted a 1.03 billion pounds ($1.55 billion) offer from Japan's Brother Industries Ltd.

Domino's shares were last seen at 945 pence, above the 915 pence offer price. Traders said some merger abitragers were betting on a higher bid from another suitor and short sellers were rushing to close their negative bets.

"The deal with Brother has no 'irrevocable' clause, (which) gives risk arb players reason to hope," a trader in London said.

Industry peers Xaar (LSE: XAR.L - news) and Oxford Instruments (LSE: OXIG.L - news) rose 8.7 percent and 3.2 percent, respectively.

The broader Britain's FTSE 350 index of UK shares was up 0.3 percent at 3,698.26 points at 0933 GMT, after shedding 2.5 percent on the previous day, its steepest daily loss since December. The blue-chip FTSE 100 index was up 0.3 percent at 6,720.72 points.

Oil explorer Cairn Energy was the top FTSE 350 faller, shedding 17.6 percent after filing a dispute notice against the Indian income tax department over a $1.6 billion tax claim.

"The timing of the tax assessment (same day as results), the significant amount...and the fact it seems to fly in the face of commentary surrounding both Cairn's specific case and the broader retrospective tax narrative make this situation a new and material escalation of the tax dispute," analysts at Jefferies said in a note.

They downgraded the stock to "hold" from "buy" and cut their target price.

British online and catalogue-based plus-size apparel retailer N Brown Group Plc fell 14.9 percent after it cut its full-year profit forecast for the second time.

"The statement is disappointing, with a further delay in growth," analysts at Investec (LSE: INVP.L - news) said, downgrading the stock to "hold" from "buy". ($1 = 0.6639 pounds) (Reporting By Francesco Canepa)