European shares drop sharply; traders cite China regulation concerns

* FTSEurofirst 300 down 1.3 pct

* China trading clampdown hits futures and rocks Europe

* Options expiry and Bloomberg outage add to volatility

* SKF slumps after it forecasts flat demand (Updates with closing prices, quote)

By Alistair Smout and Francesco Canepa

LONDON, April 17 (Reuters) - European shares dropped on Friday, with traders pointing to weakness in Chinese futures markets as one of the drivers on a trading day also marked by an outage on Bloomberg financial terminals.

At the close, the FTSEurofirst 300 was down 1.8 percent at 1,607.03 points. The Frankfurt DAX was down 2.6 percent, with some traders also pointing to the expiry of futures and options on European indexes as a factor exacerbating market volatility.

Traders said weakness in Chinese futures markets fuelled the drop in Europe and was related to market chatter about further regulatory changes on trading in China, including a clampdown on margin trading.

"The securities regulator is encouraging short-selling to institutional investors, and they are going to stop margin trading on OTC," Ioan Smith, managing director of KCG Europe, said.

"Traders had to catch up with that news after the Bloomberg terminals came back online, and that's when we saw the falls in Europe."

Bloomberg said: "Significant but not all parts of our system experienced a disruption today. There is no indication at this point that this is anything other than an internal network issue."

Greece's ATG index also turned lower as the day progressed, led down by banks to fall 3 percent. Some investors cited concern over Greece's stand-off with international lenders.

A deal had been pencilled in for an April 24 meeting of euro zone finance ministers in Riga, but it now seems too ambitious, officials said.

"In the absence of a deal in the next few weeks, the government might not be able to avoid default," strategists at UBS (NYSEArca: FBGX - news) said in a note.

Disappointing corporate reports also hindered the market, with shares in bearings maker SKF down 8.2 percent after the Swedish company forecast flat demand for its products in the second quarter.

Crop chemicals group Syngenta (Xetra: 580854 - news) declined by 4.4 percent after reporting lower sales, hit by low commodity prices, a strong dollar and a prolonged winter in the United (Shenzhen: 000925.SZ - news) States.

SKF and Syngenta were among the worst performers on the pan-European FTSEurofirst 300 index, which has risen around 17 percent since the start of 2015.

The drop in the market saw the index down 2.3 percent since Monday, posting only its second weekly fall since the end of January.

Britain's FTSE 100 fell 0.9 percent to 6,994.63, down 1.3 percent for the week.

Europe bourses in 2015: http://link.reuters.com/pap87v

Asset performance in 2015: http://link.reuters.com/gap87v

Today's European research round-up

(Editing by Alison Williams)