European shares rebound; Telecom Italia surges on Brazil sale talk

* FTSEurofirst 300 up 0.6 pct, Euro STOXX 50 up 0.6 pct

* Telecom Italia (Other OTC: TIAJF - news) surges on speculation of unit sale

* Europe stocks saw record inflows from US in 2013 -Lipper

By Blaise Robinson

PARIS, Jan 3 (Reuters) - European stocks rose on Friday, recouping some steep losses suffered in the first session of the year, with Telecom Italia surging on speculation of a sale of its Brazilian wireless unit.

Retailers also gained ground, led by Britain's Next (Other OTC: NXGPF - news) , soaring 9.9 percent after reporting strong Christmas sales, raising its profit forecast and unveiling a special dividend.

Volumes were light across the market, however, as many market players were still away following the New Year break.

At 1530 GMT, the FTSEurofirst 300 index of top European shares was up 0.6 percent at 1,312.85 points, recovering some poise after making a negative start to the year with a 0.8 percent drop on Thursday.

"We're in a tight range today, with very low volatility. The market is moving sideways which makes trading quite difficult. We'll have to wait for next week to really see a trend emerging," said Margarita Rivas, sales trader at GVC Gaesco Valores, in Madrid.

Shares in Telecom Italia surged 5.6 percent on a report that Spain's Telefonica (Madrid: TEF.MC - news) was readying a joint offer for the Italian company's Brazilian wireless unit TIM Brasil.

Shares in Portugal's Banco Espirito Santo also featured among the top gainers, up 6.6 percent, benefiting from a fall in the country's sovereign bond yields and catching up with recent gains in the country's banking sector.

Portugal's benchmark 10-year bond yields were at their lowest since May, tracking other euro zone peripheral issuers and reflecting confidence that the economic outlook in the euro zone, including bailed-out Portugal, is improving.

Around Europe, the UK's FTSE 100 index was up 0.4 percent, Germany's DAX index was 0.5 percent higher, France's CAC 40 was up 0.6 percent, and the euro zone's blue-chip Euro STOXX 50 index was 0.6 percent higher, at 3,079.56.

The start of the year tends to see investors putting fresh money into equities, but this time there has been some caution after a stellar 2013, when the FTSEurofirst 300 gained 16 percent and the euro zone blue-chip Euro STOXX 50 index rose 18 percent.

"What we have seen from slightly more longer-term accounts is that they have had a cracking return from 2013 and they have taken some risk off the books," said Jordan Hiscott, a senior trader at Gekko Global Markets, in London.

"They are looking to see which way the market moves in the first few weeks of January before taking new long positions."

European equities enjoyed record net inflows of $16.3 billion from U.S. investors in 2013 - nearly three times the previous record of $5.8 billion seen in 2006, according to Thomson Reuters (Frankfurt: TOC.F - news) ' Lipper service.

The inflows strongly accelerated in the last quarter of the year. Investors poured in $7.6 billion in October-December as improving economic data and a more dovish European Central Bank prompted U.S. investors to scoop up shares, helping European benchmark indexes wrap up their best annual performance in four years.

Asset returns in 2013: