* FTSEurofirst 300 falls 1.3 pct, lowest close in 3 months
* Blue-chip Euro STOXX 50 down 1.7 pct, hits 3-month low
* Worries about U.S. policy, Argentina default hit sentiment
* Europe's volatility index surges 9.4 pct to 3-mth high
* Shares in Adidas and Banco Espirito Santo slump
By Atul Prakash
LONDON, July 31 (Reuters) - European shares fell sharply on Thursday, with the euro zone's blue-chip index slipping to a three-month low, on concerns of an earlier than expected interest rate hike in the Uniteed States and a debt default by Argentina.
Spanish stocks came under severe pressure, with Madrid's IBEX dropping 2.1 percent, as traders cited worries over Spanish companies' exposure to Latin America after Argentina defaulted on its debt on Thursday.
Steep falls in some stocks following their earnings reports also hurt sentiment. The broader market sell-off accelerated in the afternoon after the U.S. market opened lower and extended losses later in the session, with the Euro STOXX 50 falling 1.7 percent to its lowest since mid-April. Europe's main volatility index rose 9.4 percent to a three-month high.
Investors were jittery after solid growth numbers from the United States, the world's biggest economy, on Wednesday and expectations that Friday's U.S. non-farm payrolls numbers will surprise on the upside raised concerns that the Federal Reserve might start raising key interest rates earlier.
"The strong GDP data and an improving economic outlook have raised the risk of an early rate hike," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels, said. "Tomorrow's U.S. non-farm payrolls data may further cement the view that a rate rise could happen earlier than expected."
Data showed on Wednesday the U.S. economy rebounded sharply in the second quarter as consumers stepped up spending and businesses restocked, while Friday's data is likely to show U.S. non-farm payrolls rose by 233,000 in July, which would mark the sixth month with job growth above 200,000.
Disappointing earnings reports also put pressure on some stocks, with German sportswear firm Adidas slumping 15.4 percent, the top faller on the FTSEurofirst 300, which ended 1.3 percent weaker at 1,349.34 points, its lowest close in three months and a weaker close for a second month.
Portugal's Banco Espirito Santo sank nearly 50 percent at one point to a record low after booking a 3.6 billion euro first-half loss, and disappointing earnings at Spanish healthcare firm Grifols sent its shares down 14 percent.
BES, which closed 42 percent lower, pushed Portugal's PSI 20 index 3.1 percent lower to underperform the wider market, while Adidas dragged Germany's DAX 1.9 percent down after saying it will scale back plans to expand in Russia and overhaul its golf business.
However, overall results from European companies were relatively positive, with shares in Sanofi rising 2.3 percent after it raised its full-year profit outlook, Royal Dutch Shell gained 2.5 percent after reporting a 33 percent rise in quarterly earnings and CNH Industrial up 3.8 percent on higher second-quarter profit.
"Despite some decent earnings from a number of blue chips, the market is stuck in a range, with many negative catalysts including Argentina's default at the forefront of investors' minds," said Lionel Jardin, head of institutional sales at Assya Capital, in Paris.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up (Additional reporting by Blaise Robinson in Paris; Editing by Alison Williams)