Europe shares take a dip but medium-term rally seen intact

* FTSEurofirst 300 down 0.1 pct, Euro STOXX 50 down 0.6 pct

* Charts show medium-term positive trend still intact

* Volatility index hits two-month low in late session

* Short interest in Italian banks on the rise, data shows

By Blaise Robinson

PARIS, Sept 20 (Reuters) - European stocks slipped on Thursday, hurt by grim macro data from Europe, China and the United States, although shares bounced off the day's lows as a number of investors took advantage of the pull-back to lift their exposure to equities.

The FTSEurofirst 300 index of top European shares closed 0.1 percent lower at 1,114.97 points, after falling by as much as 0.7 percent during the session.

The euro zone's blue chip Euro STOXX 50 index fell 0.6 percent to 2,553.03 points, after bouncing off an upward trendline started in late July, sending a bullish signal.

"For now, this is a pause in the rally, not the start of a correction. Investors are taking a breather. Indexes are testing key support levels and they are holding," FXCM analyst Nicolas Cheron said.

"The idea here is to buy the dips, knowing that the Fed and ECB are out there to support the economy."

Cyclical miners featured among the biggest fallers on the day, with Anglo American down 4.4 percent and Rio Tinto down 2.7 percent.

Data signalled on Thursday that China remains on track for a seventh quarter of slowing annual growth, while U.S. manufacturing suffered its weakest quarter in three years and conditions at European businesses worsened.

The euro zone bank index, which has jumped around 50 percent since late July, also lost ground on Thursday, with Societe Generale down 2.3 percent.

Italian banks were among the most hit, with Banco Popolare down 4.4 percent, Intesa SanPaolo down 3.4 percent and UniCredit down 3.1 percent.

"With the end of the ban on short selling, we're seeing hedge funds shorting Italian banks again. The idea is that the recent recovery rally might have been excessive and that the sector is poised for a correction given that the Italian economy is far from improving," a Paris-based trader said.

Data from Markit shows that since the ban on short selling of Italian banking and insurance stocks was lifted last Friday, short interest in most Italian banks has risen, although levels of shares out on loan remain well below levels seen earlier this year.

The Euro STOXX 50 has surged 18 percent over the past two months, propelled by the European Central Bank's plan to buy sovereign bonds to lower the borrowing costs of debt-stricken euro zone countries, as well as by the U.S. Federal Reserve's bold stimulus measures.

Thursday's retreat was due in part to this week's expiry of a number of futures and options contracts, said David Thebault, head of quantitative sales trading at Global Equities.

"A lot of people used derivatives to take a long position on the market's direction, and now they are either closing or rolling these bullish positions, hence the dip," he said.

"Overall, the mood remains positive, and one of the factors behind this is the flurry of mergers and acquisitions we've been getting lately. It's a big signal that cash-rich companies are getting antsy."

Also sending a bullish signal on Thursday despite the market's dip, the Euro STOXX 50 volatility index, Europe's widely-used measure of investor risk aversion, fell to a two-month low late in the session.

The VSTOXX, which measures the cost to protect stock holdings against potential pull-backs as it usually moves in an opposite direction to equities, fell 0.8 percent to 20.13, a level not seen since mid-July.

The lower the volatility index, the higher investors' appetite for risky assets such as equities.