(For a live blog on European stocks, type LIVE/ in an Eikon news window)
* German industry orders show recovery in June
* Vivendi rallies on talks to sell UMG stake
* Rolls Royce falls after hiking cost estimate (Updates to close)
By Susan Mathew
Aug 6 (Reuters) - European shares finished lower on Tuesday weighed down by trade worries as support from upbeat German data and China stepping in to stabilise its currency proved to be temporary.
After trading higher for most of the session and gaining up to 0.7%, the pan-European stocks benchmark STOXX 600 index closed 0.5% lower, extending a trade driven rout to a third session.
"The bounce that we saw in the morning was not necessarily well founded so therefore it is duly fading as we get to the close," said City Index analyst Ken Odeluga.
The brief bounce after a two-day sell-off was spurred by China's central bank fixing the yuan at a slightly stronger rate on Tuesday, allaying fears that Beijing would use its currency as the new front in its trade battle with the United States.
"This sends a signal that contrary to initial perceptions we may have got from China, there is not necessarily a desire to see the yuan slump out of control even if that may have some benefits that offset the negatives with respect to the trade conflict," Odeluga said.
Fears of the trade war between the United States and China turning into a currency battle had spooked investors on Monday as Beijing let the yuan slip below a key 7 to dollar level after U.S. President Donald Trump threatened last week to slap a 10% tariff on the remaining $300 billion of Chinese imports.
This revived concerns that the trade war, which has already disrupted supply chains and contributed to a slowdown in global growth, would worsen and get more protracted to end a steady recovery in stocks over the last two months
London's FTSE 100 index packed with miners and commodity-focused firms who are heavily exposed to Chinese demand, fell 0.7% to a two-month low, while Germany's DAX reversed a 1% jump to close down 0.8%.
Data that German industrial orders exceeded expectations had also supported sentiment earlier in the day. The industrial sector was among top performing major sectors before markets turned lower.
In company news, Metro was the worst performer on the main index, down 8.1% after Czech businessman Daniel Kretinsky's investment vehicle confirmed it would not raise its 5.8 billion euro bid for the German retailer.
British aero-engine maker Rolls Royce plc followed with its 6.9% decline as it raised its cost estimates.
Vivendi shares jumped on news that it may sell a 10% stake in Universal Music Group to Chinese tech group Tencent , while industrial group Rotork Plc topped STOXX 600 on posting strong first-half results. (Reporting by Agamoni Ghosh, Shreyashi Sanyal and Susan Mathew in Bengaluru; Additional reporting by Madeline Chambers, editing by Ed Osmond)