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UPDATE 1-European shares inch higher after two-day sell-off

Agamoni Ghosh and Shreyashi Sanyal

* Two-day fall since Friday was biggest in 3 yrs

* German industry orders show recovery in June

* Deutsche Post ups forecast, Oerlikon cuts guidance

* Vivendi rallies on talks to sell UMG stake (Updates prices, adds quote)

Aug 6 (Reuters) - European shares steadied on Tuesday after posting their biggest two-day drop in over 3 years, as upbeat German data soothed some of the nerves around the past week's escalation of U.S.-China trade tensions.

German industrial orders rose 2.5% in June, the biggest jump since August 2017, although the government of Europe's biggest economy said it was yet to reach a turning point after months of weakness which have worried investors.

Traders said the selling driven by the symbolic fall in the value of China's officially-controlled yuan currency on Monday had eased for now, but said sentiment remained shaky.

London's FTSE 100 index, packed with miners and commodity-focused firms who are heavily exposed to Chinese demand, fell another half a percent in morning trade.

The pan-European STOXX 600, however, gained 0.06%.

"The decent increase (in German orders) in June is good news, but is no cause for immediate celebration. In view of the trade conflicts, humility is required," said Thomas Gitzel, economist at VP Bank.

The export-oriented German economy, facing headwinds from trade disputes, a cooling global economy and Brexit uncertainty is still widely expected to have contracted in the second quarter.

But the orders were another sign - following robust if slowing data from the United States - that the economic weakness that has spurred a change in direction from major central banks in recent weeks may not be as bad as feared.

The German-dominated auto sector rose in response to the data, while media stocks led sub-sector gains as Vivendi shares jumped on news that it may sell a 10% stake in Universal Music Group to Chinese tech group Tencent .

Earnings in the region were mixed with shares of Deutsche Post rising nearly 3% after the German post and logistics group affirmed its guidance for the second half of 2019 and 2020. Switzerland's OC Oerlikon fell 1.5% after the industrial group cut its 2019 guidance.

Shares of Germany's Metro slumped 8% after Czech businessman Daniel Kretinsky's investment vehicle confirmed it would not raise its 5.8 billion euro bid for the German retailer and wholesaler. (Reporting by Agamoni Ghosh and Shreyashi Sanyal in Bengaluru; Additional reporting by Madeline Chambers)