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European shares sag on bond market and foreign exchange jitters

* FTSEurofirst 300 down 0.2 pct, DAX slips 0.1 pct

* Public holiday in much of Europe but markets open

* Rise in yields and euro currency weigh on equities

* Europe bourses in 2015: http://link.reuters.com/pap87v (Adds detail, updates prices)

By Sudip Kar-Gupta and Alistair Smout

LONDON/E DIN BURGH, May 14 (Reuters) - European shares extended a losing streak on Thursday as bond market jitters and a rebound in the euro, whose weakness has benefited European exporters, weighed on stocks.

Record (LSE: REC.L - news) -low interest rates and government bond purchases by the European Central Bank (ECB) have kept a lid on the euro and buoyed European stocks. The market turned volatile on signs bond yields and the currency were rebounding.

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The pan-European FTSEurofirst 300 index was down by 0.2 percent at 1,566.99 points by 1030 GMT. The FTSEurofirst lost ground in the previous two sessions, although it remains up around 14 percent since the start of 2015.

Germany's DAX, which hit a record high last month, fell 0.1 percent. France's CAC declined by 0.2 percent. A public holiday across much of Europe was expected to keep trading volumes subdued.

A pick-up this week in benchmark German and U.S. bond yields has made equities look more expensive compared with debt. Some investors trimmed equity positions to cash in on the earlier stock market rally.

"The bond market moves are making investors quite anxious. I think everyone expected yields to rise once we started to see a bounce in oil prices as, naturally, this would change people's inflation outlook," said Oanda senior market analyst Craig Erlam.

"The pace at which they've risen has been quite surprising, which is probably a consequence of a lack of liquidity in the market at the moment," Erlam said. "A small change in attitude can have a much greater impact."

Stocks were also held back as the dollar weakened on signs that a slowdown in the U.S. economy at the start of the year was stretching into the second quarter. The dollar's decline pushed up the value of the euro.

Italian luxury group Salvatore Ferragamo (Milan: SFER.MI - news) , for example, fell to a one-week low. A stronger dollar helped sales in the last quarter, although management said foreign exchange volatility meant it was too early to say whether full-year estimates would be met.

Its decline was the biggest on Italy's FTSE MIB. The company's shares were briefly suspended after it slumped 5 percent.

Other stocks that have rallied this year on the euro's weakness, such as automakers and travel and tourism companies, also fell.

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

Today's European research round-up (Editing by Alison Williams)