* FTSEurofirst 300 up 0.7 percent, halts 3-week retreat
* 'Oversold' banking stocks bounce back
* Carrefour drops 9 percent after cutting profit forecast
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By Blaise Robinson
PARIS, Dec 1 (Reuters) - European stocks rose in early trade on Wednesday, halting a three-week sell-off as strong Chinese manufacturing data lifted sentiment on global growth and eclipsed nagging concerns over the euro zone debt crisis.
The gains where limited, however, by weaknesses in the food and retail sector after world No.2 retailer Carrefour cut its 2010 profit forecast, sending its shares down 9 percent to a one-year low.
Rivals Ahold, Sainsbury and Morrison Supermarkets lost 0.8 to 1.1 percent.
At 0932 GMT, the FTSEurofirst 300 index of top European shares was up 0.7 percent at 1,074.64 points, while the Euro STOXX 50 rose 0.9 percent, moving back above a key support level, the 38.2 percent Fibonacci retracement of the index's drop from an April high to a May low.
The euro zone blue-chip index's next big resistance level is at 2,737.62, which represents the 50 percent retracement of the April-May drop.
"We're getting a technical rebound. A number of indicators showed the indexes as 'oversold', and some investors have started looking for bargains. But we're keeping a close eye on bond yield spreads to see if this stock rebound has legs," said Harry Sebag, head of sales trading at Saxo Banque.
Investors seemed to take a breather from the euro zone debt crisis, despite Standard & Poor's warning late on Tuesday that it could cut Portugal's credit ratings.
The premium investors demand to hold Spanish government bonds was set for its largest decline in two weeks as core German Bunds fell ahead of a sale and peripheral debt got some respite from its recent battering.
Banco Santander gained 5.2 percent, Societe Generale rose 3 percent and BBVA added 5 percent.
The STOXX banking sector index is still down 15 percent since mid-September on fears that a deepening euro zone debt crisis could force a state member to default, triggering big writedowns for financial institutions.
But over the past few days, the sector index had fallen into 'oversold territory' for the first time since May, with its relative strength index (RSI) hitting 25.7 on Tuesday. Thirty and below is considered "oversold" territory.
Around Europe, UK's FTSE 100 index was up 1 percent, Germany's DAX index up 1.2 percent, and France's CAC 40 up 0.7 percent.
Carmakers gained ground, with the STOXX auto index up 1.9 percent, helped by an upbeat Nomura note saying the continent's market should be "back in the black in 2011".
Renault gained 2.3 percent and BMW rose 1.9 percent. So far this year, the auto index has gained 41 percent, by far the best sector performance in Europe.
"Investors have been playing the theme 'buy cyclicals, sell financials'. Banks are far from getting out of the woods, but cyclicals are overheating, particularly the auto sector," said Pierre Sabatier, strategist at Prime View, in Paris.
"We think it's best to turn to defensive stocks at this point." (Reporting by Blaise Robinson; Editing by Hans Peters)