REFILE-European low-volume share rally seen fading

(Edits headline, no other changes)

* FTSEurofirst 300 index closes up 0.7 percent

* Strong volume in Cable & Wireless Worldwide

* Gains seen limited, investors positioning for falls

By Joanne Frearson

LONDON, Feb 13 (Reuters) - A low-volume rally in European shares on Monday looked to peter out as traders said short-sellers were beginning to position for a fall in the market.

Cable & Wireless Worldwide was the star performer, jumping 44.5 percent in volume nearly tenfold its 90-day daily average, after Vodafone Group said it was considering a bid for the group.

Gains in the broader market, however, were seen as limited as riots in Athens against the latest Greek austerity measures cast a shadow over a meeting of euro zone finance ministers on Wednesday to approve the cuts.

Banks, many of which have exposure to euro zone sovereign debt, pared earlier session gains, with the STOXX Europe 600 Banks index closing up 0.5 percent after being up more than 1 percent in the morning.

"Obviously we have seen the market jump up this morning on Greece, but there is some scepticism," said Joe Rundle, head of trading at ETX Capital. "Volumes are thin and people are looking to sell into this rally."

"It is not good for economic confidence when you see riots and austerity cuts are on the front page. It stops people spending on the real world and erodes consumer confidence."

Another upcoming concern for investors were bond auctions in Spain and Italy - countries also engulfed in the region's debt crisis - due later in the week, which would test investor appetite for euro zone peripheral debt.

The pan-European FTSEurofirst 300 index of top shares closed up 0.7 percent at 1,071.63 points. Volumes were at only 69.2 percent of the 90-day daily average

Rundle said he did not think the "FTSEurofirst 300 could get past 1,080", a level it neared last week on euphoria about a Greek deal, and said "I think it is going to go back down to about 1,033", a level it hit in late January before the rally started.

CA Cheuvreux also thought equities were ripe for a correction following the stellar start to the year, but recommended to buy on the dips.

"The first significant setback of 2012 is due," says Christopher Potts, head of economics and strategy at CA Cheuvreux, who recommends "buying the dip" and upgrades the banking sector to 'neutral'.

"In current circumstances market correction should not be more than 5 percent on major indices nor last for more than about a week." (Reporting by Joanne Frearson; Editing by David Cowell)