Earnings, M&A help Europe stocks recover

* FTSEurofirst 300 up 0.3 pct, Euro STOXX 50 up 0.1 pct

* Spanish, Italian stocks resume sell-off

* Auto stocks knocked by worries over Chinese investigation

By Blaise Robinson

PARIS, Aug 5 (Reuters) - European shares gained ground on Tuesday in a tentative rebound following last week's sharp sell-off, supported by forecast-beating results from blue-chips including Deutsche Post (Other OTC: DPSGY - news) .

M&A fever also helped, with Vivendi surging 3.6 percent after Telefonica unveiled a 6.7 billion euro ($8.99 billion) offer for the French firm's Brazilian business GVT. Shares (Frankfurt: DI6.F - news) in Telefonica slipped 1.7 percent.

But despite the gains in core Europe, Southern European markets fell sharply, resuming last week's retreat as investors, rattled by the crisis at Portugal's Banco Espirito Santo , further reduced their exposure to the region.

Shares in Italian lenders Banco Popolare and Intesa SanPaolo lost 3.8 and 2.4 percent respectively, while Spain's Bankinter fell 4.3 percent.

Milan's FTSE MIB lost 1.6 percent and Madrid's IBEX fell 1.4 percent.

"Volatility is on the rise, which is quite typical during summer months. With this correction knocking down the IBEX since early July, I'm starting to see good buying opportunities," said Margarita Rivas, senior investment strategist at GVC Gaesco Valores, in Madrid.

The FTSEurofirst 300 index of top European shares ended 0.3 percent higher, at 1,334.59 points.

European stocks trimmed their gains in afternoon trading after Markit (NasdaqGS: MRKT - news) said its final U.S. services Purchasing Managers Index (PMI) hit 60.8 in July - well above 50 which signals expansion in economic activity - reviving speculation that the U.S. Federal Reserve could start raising interest rates earlier than previously expected.

The FTSEurofirst 300 has lost 4.6 percent in the past month, as the prospect of tighter U.S. monetary policy, trouble at Banco Espirito Santo and concern over the impact of fresh sanctions on Russia led investors to book profits made earlier this year.

"This is mostly a technical bounce after such a slide, but the background remains the same: The Ukrainian crisis still poses a serious risk to Europe, and I don't think it's priced in already, especially by retail investors," said Riccardo Designori, market analyst at Brown Editore in Milan.

Last week, the European Union and the United States unveiled further sanctions against Russia, targeting its energy, banking and defence sectors in the strongest international action yet over Moscow's support for rebels in eastern Ukraine.

Russian news agencies reported on Tuesday that President Vladimir Putin has ordered his government to prepare retaliatory measures against the latest round of sanctions.

Around Europe, UK's FTSE 100 index rose 0.1 percent, Germany's DAX index added 0.4 percent, and France's CAC 40 gained 0.4 percent.

On the earnings front, Deutsche Post gained 2.2 percent after reporting a better-than-expected profit.

Credit Agricole added 2.2 percent as the bank - which took a 708 million euro hit from its stake in troubled Portuguese lender Banco Espirito Santo BES.LS - still managed to beat analyst expectations for second-quarter results.

Shares in automakers lost ground, with Fiat down 3.1 percent, Daimler (Xetra: 710000 - news) down 1.2 percent and Volkswagen (Xetra: 766400 - news) down 1.6 percent, as traders cited worries over an investigation by China's anti-monopoly authorities.

Europe bourses in 2014: http://link.reuters.com/pap87v

Asset performance in 2014: http://link.reuters.com/gap87v

Today's European research round-up (Editing by Hugh Lawson)