* FTSEurofirst 300 down 0.9 pct, reverses two-day rebound
* Grim German data fuels worries over economic outlook
* Rio jumps after rejects merger approach by Glencore
By Liisa Tuhkanen and Francesco Canepa
LONDON, Oct 7 (Reuters) - European shares staged a broad-based selloff on Tuesday as weak German industrial output data darkened the outlook for the region’s largest economy.
All but one sectoral indexes in the pan-European STOXX Europe 600 fell. The basic resources index was the only exception, rising 1 percent as news of a rejected merger approach by Glencore for larger rival Rio Tinto rekindled speculation about consolidation in the mining industry.
At 1032 GMT, the FTSEurofirst 300 index of top European shares was down 0.9 percent at 1,338.17 points, giving up most of a 1.1 percent rise over the previous two sessions.
Frankfurt’s DAX fell 0.8 percent after data showed the biggest drop in Germany’s industrial production since the financial crisis in early 2009.
The report, which came hard on the heels of disappointing German industrial orders on Monday, raised question marks about a country that investors expected to be Europe’s growth engine, and piled further pressure on the European Central Bank to do more to stimulate the region’s economy.
The ECB cut its interest rate to a record low and unveiled plans to buy reparcelled debt and covered bonds last month.
“Considering the relative size of the industrial sector in Germany, it increases the odds that Germany will either be growing at zero or slightly negative in the fourth quarter,” said Wouter Sturkenboom, investment strategist at Russell Investments.
“At the moment we have maintained a small array of euro zone equities and we are holding on to that. Unless things deteriorate from here we would keep that because we think that the stimulatory ECB policy is going to allow the euro zone to maintain its trend growth.”
Germany's DAX has been lagging all other major European markets so far this year, down 4.4 percent. link.reuters.com/pap87v
Also weighing on the DAX was Deutsche Lufthansa after German pilots union VC on Monday called a strike in a dispute over retirement benefits. The airline’s stock was down 3.4 percent at 1055 GMT.
Bucking the market’s declines, miner Rio Tinto surged 4.7 percent after it said it had rejected a merger approach from smaller rival Glencore that would create a $160 billion mining and trading giant.
The news sparked hopes of consolidation in the basic resources sector, recently hurt by a slump in metal prices including iron ore, which has hit five-year lows.
The STOXX basic resources sector index has lost 12 percent since late July.
Shares in Anglo American added 2.2 percent while Glencore fell 1.6 percent.
Shares in Cairn Energy, meanwhile, surged 8.1 percent after the oil explorer said it had discovered oil at a well in a previously untapped area off the coast of Senegal.
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 Crispian Balmer)