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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 index rebounded from three-week lows on Monday, with miners bolstered by Xstrata's backing of a takeover bid from Glencore , potentially opening the door for more deals in the sector.

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

Manufacturing data pointed to a slight improvement in the pace of the slowdown in China - a key driver of world economic growth and commodities prices - but was weak enough to keep alive expectations of fresh stimulus measures.

Global mining company Xstrata was a top gainer among UK blue chips, adding 2.8 percent in heavy volume after the gold miner's board gave its blessing to leading commodities trader Glencore's bid after weeks of uncertainty. That helped 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 on with the Xstrata deal, so there is a bit of bullishness on the back of that," said Steve Asfour, head of sales trading at Fox Davies Capital, adding that further deals could follow, with recent weakness potentially making some South African-focused miners attractive takeover targets for the bigger players.

The FTSE 100 rose 57.56 points or 1 percent to 5,799.63 by 1025 GMT, recovering from a three-week low of 5,738.59 points and flirting with mild technical resistance around the 30- and 40-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 gained 3.1 percent thanks to expectations of more global stimulus, which were met in September by the U.S. Federal Reserve, the European Central Bank and the Bank of Japan.

China is still expected to do more, with Monday's news of a continued - albeit easing - slowdown in manufacturing activity leaving the door firmly open to fresh measures to boost the economy and cheer markets.

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

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

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

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

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

Shore Capital, meanwhile, recommended focusing on so-called defensive sectors which are better placed to ride out global recession risk and earnings slowdown. Companies who provide staples like food, healthcare or power for which there is demand regardless of the economic climate are often seen as the best bets to hold up in a downturn.

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

((antonina.vorobyova@thomsonreuters.com)(+44 207 542 9828)(Reuters Messaging: antonina.vorobyova@thomsonreuters.com))