European shares set for first weekly fall since March

* STOXX up 0.5 percent, set for 0.5 percent weekly drop

* Autos rebound as Trump tariff plans criticised

* Italy banks hit 11-month low (Adds details, updates prices)

By Danilo Masoni

MILAN, May 25 (Reuters) - European shares bounced back on Friday but were set for their first weekly drop since March as worries over a new eurosceptic government in Italy, global trade talks jitters and a slowing economy took their toll.

The pan-European STOXX 600 benchmark index rose 0.4 percent by 0847 GMT after hitting an eight-day low on Thursday. The index however remained down 0.5 percent on the week.

"The last two days has seen a rapid turnaround in sentiment as a number of different factors, geopolitical as well as economic, appears to have offered the opportunity ... to lock in some gains," CMC Markets (LSE: CMCX.L - news) analyst Michael Hewson said.

The STOXX 600 is up 0.8 percent so far this year.

Italy's FTSE MIB hovered near 7-week lows, down 0.1 percent, as political worries prompted investors to pull money out of the country's equity funds.

According to EPFR, Italian equity funds posted record redemptions of $380 million from last week with worries over the political situation in the euro zone's third-largest economy also sparking outflows from European equity and bond funds.

Italian banks, which are seen as a proxy for political risk in Italy due to their big sovereign bond holdings, hit an 11-month low, with top lenders Intesa Sanpaolo (Amsterdam: IO6.AS - news) and UniCredit (EUREX: DE000A163206.EX - news) both down about 1.5 percent.

"The new coalition government proposes measures which our economists see as likely to widen the budget deficit and lead Italy's national debt to rise again," Goldman Sachs (NYSE: GS-PB - news) said.

Mid-sized Italian lenders Banco BPM and UBI (Taiwan OTC: 6562.TWO - news) were among the worst performers in Europe on Friday, down more than 3 percent.

Top loser on the STOXX was Centamin (Frankfurt: A1JPZ6 - news) , which plummeted 18 percent after the mining group made a drastic cut to its full-year production guidance and raised its cost expectations because of lower-grade ore at a mine in Egypt.

Autos rose 0.7 percent after U.S. President Donald Trump's threat to impose import tariffs drew strong criticism with U.S. business groups and members of his own party warning of damage to the industry and American interests.

Shares (Berlin: DI6.BE - news) in German carmakers BMW (EUREX: BMWE.EX - news) , Daimler (Swiss: DAI-EUR.SW - news) and Volkswagen (IOB: 0P6N.IL - news) , which together control more than 90 percent of the North American premium auto market, rose between 0.4 and 1.6 percent.

Biggest gainers on the STOXX were Pennon Group (Frankfurt: 3PNA.F - news) , up 5 percent, following its trading update, and SimCorp (LSE: 0QEK.L - news) , up 4.8 percent, after a price target upgrade.

GVC Holdings (Frankfurt: 6GI.F - news) rose 1.7 percent after the British gambling company forecast higher cost synergies from its 4 billion pound acquisition of Ladbrokes Coral (LSE: LAD.L - news) . (Reporting by Danilo Masoni Editing by Louise Ireland)