UPDATE 1-European shares hit seven-week lows amid U.S.-China trade standoff

By Medha Singh

* Daimler drops on report China's BAIC looks to build stake

* Vodafone falls on report of dividend cut plans

* Energy stocks keep FTSE 100 afloat (Adds details, quote; Updates prices)

By Medha Singh

May 13 (Reuters) - European shares extended losses early on Monday from the biggest weekly slump this year as the U.S.-China deadlock quelled hopes that the two largest economies will be able to resolve their trade dispute anytime soon.

The STOXX 600 index dropped 0.5% by 0855 GMT to hit 7-month lows. Germany's trade-sensitive DAX under pressure more than its peers.

Asian shares fell and U.S. stock futures also pointed to a sharply lower open as United States and China appeared at a deadlock over trade negotiations with Washington demanding promises of concrete changes to Chinese law and Beijing said it would not swallow any "bitter fruit" that harmed its interests.

Trade tensions have plagued investors all of last week with Washington hiking tariffs on $200 billion worth of Chinese goods by Friday, raising chances of a retaliation from Beijing and stoking fears that the tit-for-tat tariffs would dent global growth.

While all European sub-sectors were lower, the tariff-exposed autos significantly underperformed with its 1.7% fall, especially weighed down by shares of Daimler AG .

Over the weekend Reuters reported that China's BAIC Group may be seeking to buy a stake of up to 5% in the Mercedes-Benz owner.

BAIC signaled its interest in buying a Daimler stake as far back as 2015, and has redoubled its effort after the chairman of rival Chinese carmaker Zhejiang Geely Holding Group built a 9.69% stake in Stuttgart-based Daimler in early 2018.

"There has been loads of rumors of an Asian buyer in Daimler around over the last week," a trader said, adding that such announcements normally come out after the buying has been done.

Among the biggest decliners was Thyssenkrupp, which tumbled 6.2 percent after short-covering boosted its shares to a record surge on Friday. The German industrial giant said it would seek partners for its steel operations after abandoning a European merger with India's Tata Steel.

Telecoms sector also took a big hit, pressured by Vodafone shares. The Times reported that the world's second-biggest mobile operator was set to slash dividend to pay for auctions for mobile phone airwaves in Germany and Italy.

Novartis fell 0.6% after issuing a voluntary nationwide U.S. recall of an oral suspension form of one of its best-selling medicine, Promacta due to potential peanut contamination.

Meanwhile gains in oil majors kept losses in check in London's FTSE 100.

On top of STOXX 600 was Britain's largest energy supplier Centrica Plc after it maintained its full-year outlook despite warning about a challenging trading environment.

In Paris, European stock market operator Euronext rose after winning a regulatory nod from Norway's finance ministry to buy up to 100% of Oslo Bors.

(Reporting by Medha Singh, Agamoni Ghosh in Bengaluru, Helen Reid in London; Editing by Angus MacSwan)