European shares bounce after sell-off; Rolls-Royce sinks

* FTSEurofirst 300 up 1.5 pct, Euro STOXX 50 up 1.9 pct

* Derivative contract expiry helps reduce selling pressure

* Carmakers rally after positive sales figures

* European equity funds suffer record weekly outflows -Lipper

By Blaise Robinson

PARIS, Oct 17 (Reuters) - European stocks rose in early trading on Friday, bouncing after the week's sharp drop, as positive U.S. macro data soothed worries over the global economy and the expiry of derivative contracts helped reduced the selling pressure.

Stocks in automakers featured among the top gainers, with Renault up 3.1 percent, PSA Peugeot Citroen up 4.8 percent and Daimler (Xetra: 710000 - news) up 1.8 percent, boosted by data showing car sales in Europe rose 6.1 percent in September, a 13 straight month of growth in sales.

At 0808 GMT, the FTSEurofirst 300 index of top European shares was up 1.5 percent at 1,264.80 points, after losing 3.7 percent earlier in the week. The euro zone's blue-chip Euro STOXX 50 index was up 1.9 percent, at 2,929.60 points.

The session was very volatile, in part due to the expiry of derivative contracts on Friday, traders said.

"Beyond the selling flows, there have been technical reasons behind the pull-back of the last few days. The looming expiry of the derivative contracts had forced brokers to manage the delta (hedging of the contracts), which accelerated the market's slump," said Jean-Louis Cussac, head of Paris-based firm Perceval Finance.

"We're limiting the damage now, but the market remains very vulnerable. A lot of hedge funds have been 'long' equities, 'long' oil and 'short' bonds, and this has added to the panic mood and brought us close to capitulation levels yesterday."

Traders and fund managers have said options on the Euro STOXX 50 have been in a channel between 3,100 points and 2,900 points, and brokers were forced to sell the market to hedge the contracts as the underlying index dropped below the channel.

Despite the day's rebound seen as mostly technical, a warning from Rolls-Royce that it would not return to growth next year fuelled worries over corporate profits, and sent shares of the British engineering group down 7.8 percent.

Rolls, the world's second-largest maker of aircraft engines behind U.S. group General Electric, blamed worsening economic conditions and tightening Russian trade sanctions for hitting next year's results. It said orders were being cancelled and delayed in its nuclear and energy and power systems businesses.

Shares (Berlin: DI6.BE - news) in technology firm Gemalto (Other OTC: GTOFF - news) tumbled 6.5 percent after Apple (NasdaqGS: AAPL - news) unveiled a new SIM card that will be installed in its latest iPads, sparking worries over the future of Gemalto's own smart chips for mobile phones, traders said.

Apple said on Thursday its new iPad Air 2 will allow subscribers to switch wireless carriers much more easily, by swiping an icon across the screen of the device.

"This is a big blow to Gemalto's technology," a Luxemburg-based trader said.

The month-long sell-off in European stocks has prompted U.S.-based investors to slash their exposure to Europe, according to data from Thomson Reuters Lipper.

A Lipper poll of 109 U.S.-domiciled funds invested in European stocks, which include exchange-traded funds' (ETFs) holdings, shows net outflows of $1.3 billion in the seven days to Oct. 15, the biggest weekly redemptions since Lipper started to monitor the data in 1992.

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

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

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