* FTSEurofirst 300 drops 0.7 pct
* Commodity-related stocks reverse early fall
* Index may show biggest monthly fall since 2008
* Paddy Power surges on Betfair merger plan
* Europe bourses in 2015: link.reuters.com/pap87v
* Asset performance in 2015: link.reuters.com/gap87v (Adds fresh prices)
By Sudip Kar-Gupta and Alistair Smout
LONDON, Aug 26 (Reuters) - The pan-European FTSEurofirst 300 index pared losses of nearly 3 percent on Wednesday, as hopes of further monetary support from the European Central Bank eased persistent concerns about China's economy.
The index traded down 0.7 percent at 1,396.97 by 1414 GMT, having been as much as 2.8 percent lower, buoyed by a strong start to trading on Wall Street.
Stocks turned higher after an ECB official said that commodity price falls put the bank's inflation target at risk, and that it was ready to act if needed.
The FTSEurofirst, which risks posting its biggest monthly loss in seven years, suffered its worst one-day drop since November 2008 on Monday, and rallied in the following session after a Chinese interest rate cut boosted markets.
Having closed down on Tuesday, U.S. futures pointed to a positive start on Wall Street.
"On a short-term basis I am willing to increase my risk and buy. I believe the market is offering opportunities," Alliance Bernstein European equities portfolio manager Michele Patri said.
"But medium term, the situation looks complex. When you see how stocks exposed to global growth are performing, you can really see how investors do not have faith in the outlook."
Commodity-related stocks remained under pressure in volatile trade. Having briefly turned higher, the STOXX Europe 600 Basic Resources, sensitive to weakness in China, was the top sectoral faller, down 1.2 percent
Many investors remain worried by signs of a Chinese economic slowdown and deflationary pressures resulting from Beijing's devaluation of its yuan currency this month.
Germany's DAX weakened by 0.4 percent, leaving it some 19 percent below a record high reached in April.
"I think the downtrend is still intact because of the bigger picture of anaemic global economic growth. Any reasonable rally on the markets will be sold into," Berkeley Futures' associate director Richard Griffiths said.
However, some brokers and fund managers are arguing for a European stock market recovery as signs of an economic pickup in the United States and Europe help to offset weakness in China.
Morgan Stanley's strategists expected the market to be higher in three months' time.
They tipped 20 shares they considered to be "oversold", including chipmaker ARM, carmaker BMW and luxury goods group LVMH - all of which have been hit by the Chinese market turmoil.
Betting firms Paddy Power and Betfair surged, both rallying around 20 percent as investors welcomed their plans to merge.
Today's European research round-up (Additional reporting by Lionel Laurent and Kit Rees; Editing by Louise Ireland/Ruth Pitchford)