British blue chips rebound, led by Xstrata

* FTSE up 1 percent, off 3-week lows

* Xstrata rises after board back Glencore offer

* Longer-term mood remains cautious after solid Q3 gains

By Toni Vorobyova

LONDON, Oct 1 (Reuters) - Britain's FTSE 100 share indexrebounded from three-week lows on Monday, with miners bolsteredby Xstrata's backing of a takeover bid from Glencore, potentially opening the door for more deals in thesector.

Investors started the new quarter in relatively upbeat mood,after Spanish bank stress tests on Friday revealed no signs ofmore trouble for the sector .

Manufacturing data pointed to a slight improvement in thepace of the slowdown in China - a key driver of world economicgrowth and commodities prices - but was weak enough to keepalive expectations of fresh stimulus measures.

Global mining company Xstrata was a top gainer among UK bluechips, adding 2.8 percent in heavy volume after the goldminer's board gave its blessing to leading commodities traderGlencore's bid after weeks of uncertainty. Thathelped the mining sector add 1.6 percent ,contributing nine points to the FTSE.

"We've finally got a bit of an indication on what's going onwith the Xstrata deal, so there is a bit of bullishness on theback of that," said Steve Asfour, head of sales trading at FoxDavies Capital, adding that further deals could follow, withrecent weakness potentially making some South African-focusedminers attractive takeover targets for the bigger players.

The FTSE 100 rose 57.56 points or 1 percent to 5,799.63 by1025 GMT, recovering from a three-week low of 5,738.59 pointsand flirting with mild technical resistance around the 30- and40-day moving averages.

Monday's recovery follows a wave of profit-taking on Friday,the final day of the third quarter in which the FTSE 100 gained3.1 percent thanks to expectations of more global stimulus,which were met in September by the U.S. Federal Reserve, theEuropean Central Bank and the Bank of Japan.

China is still expected to do more, with Monday's news of acontinued - albeit easing - slowdown in manufacturing activityleaving the door firmly open to fresh measures to boost theeconomy and cheer markets.

"Any time we see any sort of weakness in Chinese or Europeandata it just means more stimulus but it's more plaster on agaping wound and eventually the wound is going to flare upagain," said Asfour at Fox Davies.

Banks were the next biggest boost for the FTSE after anaudit showed late on Friday that Spanish banks would need 59.3billion euros in extra capital to weather a serious economicdownturn - no worse than consensus expectations.

However, with Madrid yet to make the request for help neededto activate the ECB's new bond-buying plan, and with the globalcentral bank actions still a long way from feeding through intostronger economies and earnings, the rally lacked conviction.

This was underscored by relative light volumes, with onlyaround a quarter of the average 90-day daily volumes traded onthe UK benchmark index by mid-session.

"The way to look at it is an opportunity to maybe sell onthe bounce ... We'd go short here and just wait," Ed Woolfitt,head of trading at Galvan Research.

Shore Capital, meanwhile, recommended focusing on so-calleddefensive sectors which are better placed to ride out globalrecession risk and earnings slowdown. Companies who providestaples like food, healthcare or power for which there is demandregardless of the economic climate are often seen as the bestbets to hold up in a downturn.

(Reporting By Toni Vorobyova; Additional reporting by AlistairSmout; editing by Patrick Graham)

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