* FTSEurofirst 300 up 0.2 pct, pulls away from 1-month low
* Barclays sags on U.S. fraud lawsuit linked to stock trading
* Danone rallies on mounting M&A speculation
By Blaise Robinson
PARIS, June 26 (Reuters) - European stocks inched up early on Thursday, halting the previous session's sell-off, but Barclays fell 5 percent after the New York Attorney General filed a lawsuit against the bank.
Barclays was the biggest loser among European blue chips, falling after the Attorney General filed a securities fraud lawsuit against the lender for giving an unfair edge to its U.S. high-frequency trading clients even as it claimed to be protecting other customers from the traders.
"The judicial context is becoming a real drag for the European banking sector. There are fears among investors of a contagion effect from the U.S. investigations. After BNP, Barclays, who will be next?," said Alexandre Baradez, chief market analyst at IG France.
The European banking sector index was down 0.4 percent. It has underperformed this year, rising 1 percent while the FTSEurofirst 300 index has gained 4.4 percent.
At 0833 GMT On Thursday, the FTSEurofirst 300 was up 0.2 percent at 1,374.27 points, bouncing back from a one-month low hit on Wednesday following a downward revision of U.S. first-quarter gross domestic product.
The data had sparked a pull-back in European bourses on Wednesday - with the FTSEurofirst 300 ending 1.1 percent lower. However, later on Wall Street investors brushed aside the initial concerns and the market inched higher, helped by speculation the weak data would delay U.S. interest rate hikes.
"The figure was pretty bad. The market might be rebounding a bit today, but indexes are toppish and in the short term, there aren't any positive catalysts," IG's Baradez said.
Thursday's rebound was also capped by violence in Iraq, traders said. Militants attacked one of the country's largest air bases and seized control of several small oilfields.
Around Europe, the UK's FTSE 100 index, Germany's DAX index and France's CAC 40 were all up just 0.1 percent.
Shares in London Stock Exchange Group surged 4.8 percent after the bourse operator unveiled a bid to acquire investment services firm Frank Russell for $2.7 billion and said it would launch a rights issue to raise $1.6 billion to help fund the acquisition.
Shares in Danone rose 2.7 percent after Natixis upgraded its rating on the shares to 'buy' from 'neutral', citing increasing speculation that the French food group could become a takeover target.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Editing by Susan Fenton)