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UPDATE 2-Snap shares bounce off low; employees free to sell shares

(Adds details on volume, updates prices)

NEW YORK, Aug 14 (Reuters) - Snap Inc shares rebounded on Monday from a record low in a volatile trading session as big investors reported their stakes in the social media company and a wave of employees became eligible to sell their shares.

Snap rose 6.5 percent to end at $12.60 after falling to as low as $11.28 shortly after the market opened, the lowest level since its March trading debut.

Volume hit about 84 million shares, making Snap the most-traded stock across all U.S. exchanges.

Employees for the first time were allowed to sell their stock following the Snapchat parent's blockbuster initial public offering, potentially increasing the supply of shares in the market and boosting their volatility.

Also on Monday, several hedge funds and other institutional investors reported changes to their stakes in Snap in the June quarter.

T. Rowe Price Group Inc, a mutual fund manager that is Snap's fifth-largest shareholder, hiked its stake by about a third, according to filings on Monday. BlackRock Inc, the world's largest asset manager, and Coatue Management LLC, a hedge fund that is Snap's sixth-largest shareholder, also increased their stakes, recent filings said.

Third Point LLC, Jana Partners and Temasek Holdings dissolved their stakes in Snap entirely, filings since Friday showed.

Fidelity Investments, Snap's seventh-largest shareholder, said in filings last week that it cut its holdings by more than half, to about 15 million shares from more than 33 million shares.

MARKET AMBIVALENCE

Monday's stock rise followed a disappointing quarterly report from Snap last week that sent its shares down 14 percent on Friday to a closing low of $11.83, far below its IPO price of $17.

Snap has been a target of short sellers, with 5.5 percent of its shares outstanding shorted as of Thursday, according to Thomson Reuters data.

The stock has a higher-than-average likelihood of a short squeeze, where the price rises as short sellers rush to cover their bets, according to Starmine data.

But short-covering was not driving Monday's rally, said Ihor Dusaniswky, head of research at financial analytics firm S3 Partners in New York.

"There just isnt enough stock being covered in order to have an impact on todays stock price," Dusaniswky said.

Wall Street is increasingly worried that Snap is succumbing to competition from Facebook Inc's Instagram.

Instagram has adopted Snapchat-like features and has 250 million daily active users, compared with Snapchat's 173 million at the end of the second quarter, fewer than Wall Street had expected.

"We remain on the sidelines until we see signs of re-acceleration in user growth, an inflection on Snap pricing ... and/or get closer to the end of the lock-up expiration," Cantor Fitzgerald analyst Kip Paulson said in a research note, lowering his price target to $15 from $17.

Snapchat is popular among people under 30 who like decorating their pictures with bunny faces and other filters. But investor concerns have mounted following Snap's IPO that the company might never become profitable.

With Monday's lockup expiry, employees are allowed to sell hundreds of millions of their shares for the first time since Snap's $3.4 billion IPO in March, the largest U.S. IPO in years.

That follows an expiry at the end of July on restrictions from early investors owning around 400 million shares.

To try to reassure investors, Snap Chief Executive Officer Evan Spiegel and co-founder Robert Murphy on Thursday committed to not sell any of their combined 422 million shares in 2017.

Close to 800 million shares became eligible for trading on Monday, including Spiegel and Murphy's stakes, according to JPMorgan analyst Doug Anmuth. (Reporting by Noel Randewich, Lewis Krauskopf, Rodrigo Campos, Trevor Hunnicutt and Saqib Iqbal Ahmed; Editing by Meredith Mazzilli)