European shares advance on interest rate outlook, led by autos

* FTSEurofirst 300 up 0.9 percent at two-week highs

* Auto sector top sectoral gainer led by Renault (Swiss: RNO.SW - news)

* SABMiller (Xetra: BRW1.DE - news) drops on reported rejection of InBev offer

* TeliaSonera (Amsterdam: 1087941.AS - news) drops 3 pct on newspaper report

By Danilo Masoni

MILAN, Oct (HKSE: 3366-OL.HK - news) 6 (Reuters) - European shares moved higher on Tuesday, extending strong gains in the previous session, with sentiment helped by expectations central banks in Europe and the U.S (Other OTC: UBGXF - news) . will maintain an equity-friendly monetary policy in the coming months.

The pan-European FTSEurofirst 300 rose 0.9 percent to trade around two week highs and the euro zone's blue-chip Euro STOXX 50 was up 0.8 percent.

"No doubt overall sentiment has improved over the past few days as uncertainty regarding an imminent US rate hike has been removed for now," said Peregrine & Black trader Markus Huber.

"Firmer markets towards the end of the day would certainly confirm that the 'Bulls' are slowly gaining the upper hand again."

Concerns over the repercussions of an economic slowdown in China and uncertainty over when the U.S. Federal Reserve will end a decade of easing policies had driven European shares to nine-month lows at the end of last quarter. Now (NYSE: DNOW - news) some investors think the sell off is overdone and believe European shares are well positioned to benefit from a rebound.

"We would buy Europe ex UK and Japan into this sell-off. Both have reasonable EPS momentum and should receive further support from their respective central banks," Citi said in its global equity quarterly report.

On Tuesday data showed that industrial orders in Germany, Europe's largest economy, dropped mainly because demand from non-euro zone countries weakened.

The weaker data should ultimately mean that the European Central Bank maintains its ultra-easy monetary policy, according to Joe Rundle, head of trading at ETX Capital.

The auto sector, which has been pressured recently by a emissions tests rigging scandal at Volkswagen (Other OTC: VLKAF - news) , was the top sectoral gainer with a rise of more than 2 percent. Other sectors were higher but gains were mostly below 1 percent.

Renault rose 6 percent gain on speculation about potential developments in the French carmaker's alliance with Japanese partner Nissan. A source close to the matter said Renault would hold a board meeting on Tuesday to discuss the alliance.

Volkswagen rose 2.3 percent. The stock had initially declined around 3 percent after reports that the car maker had admitted 8 million vehicles were fitted with software capable of cheating diesel emissions tests in the European Union. Its sales in South Korea also fell.

Volkswagen Chief Executive Matthias Mueller warned staff on Tuesday to brace for "massive cutbacks" in response to the diesel emissions scandal.

Mining and trading giant Glencore (Xetra: A1JAGV - news) remained volatile but reduced losses. It (Other OTC: ITGL - news) was down 0.5 percent after surging 21 percent in the previous session, its best daily gain ever.

Hopes of asset sales and comments that output cuts would lift copper prices helped to support Glencore's shares on Monday, but a fresh target price cut by HSBC suggested that recent volatility could prevail in the near term.

Brewer SABMiller fell 3 percent following a Bloomberg report saying the brewer was said to have rejected an informal takeover offer from ABInBev as too low.

Among top fallers were German utility RWE (Xetra: 703712 - news) and steelmaker ArcelorMittal (Other OTC: AMSYF - news) which gave up gain posted in the previous session.

Bouygues Telecom rose 3.4 percent. France's third-largest mobile operator said it aimed to improve its profit margins and sales in coming years as it defends its standalone strategy.

Shares (Berlin: DI6.BE - news) in TeliaSonera fell 2.9 percent. A newspaper reported that U.S. authorities may seek damages as high as 8 billion Swedish crowns ($961 million) from the Swedish telecoms operator in relation to an investigation of alleged corruption in Uzbekistan.

Today's European research round-up (Additional reporting by Alistair Smout in London; Editing by Keith Weir)