PORT LOUIS (Reuters) - Mauritius' textile sector, which supplies top European chains, expects growth of more than 2 percent this year helped by a stabilisation in its traditional markets and a diversification into new ones.

The sector, which contributes 6.5 percent of gross domestic product and provides 11 percent of jobs, grew a marginal 0.7 percent in 2010 due to the global downturn.

"The textile sector may grow higher than the government's forecast of 2 percent this year with a stabilisation in our traditional markets and helped by a diversification into new markets," said Ahmed Parker, director of Star Knitwear, which supplies stores such as Topshop and River Island in Britain.

Star Knitwear exports 40 percent of its products to Britain, 20 percent to the United States and the remainder to South Africa, which he said had big potential.

"Mauritius may benefit from the political instability in some countries of the continent as retailers look for other sources of supply," Parker said, referring to the unrest in Tunisia and Egypt.

The Indian Ocean island is looking to diversify into new markets beyond the euro zone to protect itself better from external shocks.

"For the next four months we have a full order book," said Harold Mayer, CEO of Ciel Textiles, which has plans to increase its capacity in Asia.

The company produces T-shirts and shirts for chains such as Marks & Spencer and Next in Britain and Spanish fashion stores Zara, owned by the world's biggest clothing retailer Inditex.

Mayer said the company's operations are divided between Mauritius with 35 percent, Madagascar with another 40 percent and Asia with the remaining 25 percent.

The Mauritius Export Association (MEXA) said the situation in the textile sector was not as bad as in 2010 but warned a further rise in cotton prices and a possible increase in interest rates may undermine the sector's competitiveness.

The Bank of Mauritius slashed rates by 1 percentage point last September in a move to hasten economic recovery.

"The decision of the Monetary Policy Committee to cut rates has started to give results. It has brought about a stabilisation of the rupee and we are asking the central bank to maintain the rate in order to give time to local enterprises to restructure operations," said Mukesh Gopal, MEXA's chairman.