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UPDATE 2-European stocks rebound after upbeat earnings, chip M&A activity

* Nordic Semiconductor jumps on M&A report

* Trainline slumps to bottom of STOXX 600

* Tech stocks lead sectoral gains (Adds comments, updates prices throughout)

May 20 (Reuters) - European stocks rose on Thursday after one of the worst selloffs this year as strong earnings and merger talks in the chip sector helped investors look past inflation worries.

The pan-European STOXX 600 index rose 1.3% after suffering a 1.5% loss in the previous session. Tech stocks gained 2.7% to lead sectoral gains.

Oslo-listed chipmaker Nordic Semiconductor jumped 9.8% to the top of STOXX 600 after an Italian daily reported that Franco-Italian rival STMicroelectronics is mulling an offer to buy the company.

But, Nordic Semiconductor’s chief financial officer said the firm had “no knowledge” of any takeover interest from STMicroelectronics.

A rally in economy-linked cyclical sectors on the back of reopening optimism and solid earnings drove the STOXX 600 to record high earlier this month, but inflation worries and a rise in market volatility put the index on course for weekly losses.

“Given we’re near a cyclical peak in the real economy and confidence indicators, we want to put some defensive names in order to hedge in what could be a more volatile phase in markets,” said Michele Morganti, Generali Investments’ senior equity strategist.

Wall Street’s main indexes also rose after a three-day slide, helped by gains in technology stocks, as the smallest weekly jobless claims since the start of a pandemic-driven recession bolstered risk appetite.

German producer prices posted their biggest increase in nearly a decade, in a further sign that supply bottlenecks are leading to increased inflation pressure in Europe’s largest economy.

However, Jack Allen-Reynolds, senior Europe economist at Capital Economics said: “once the temporary forces pushing up inflation fade, we expect it to drop back sharply to well below the ECB’s target.”

In earnings, French conglomerate Bouygues edged up 0.3% after it raised the full-year guidance for its telecoms division and reported a smaller than expected first-quarter core loss.

Deutsche Telekom added 2.5% on raising its medium-term core profit outlook.

Budget airline EasyJet fell 2.1% after it warned that late announcement of travel rules reduced visibility as it reported a wider half-year loss.

UK rail operator Trainline slumped 23.3%, marking its worst day on record, with traders pointing to hit from a reorganisation of Britain’s railway system. (Reporting by Sruthi Shankar and Shreyashi Sanyal in Bengaluru; Editing by Arun Koyyur and Andrew Heavens)

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