FOR years Americans have regarded European jazz with the same tolerant smile they reserve for Japanese baseball. But something is stirring in the Old World. A generation of musicians is emerging from Europe's jazz underground, and now they're raising a tolerant smile at the mention of American jazz. Talk to them about the current state of the music, and it's as if an old and dear friend has passed away. They believe American jazz is retreating into the past while Europe is moving the music into the 21st century.

The highly praised Norwegian pianist Bugge Wesseltoft spoke for many recently when he said: ''I think American jazz somehow has really stopped, maybe in the late 70's, early 80's. I haven't heard one interesting American record in the last 20 years. It's like a museum, presenting stuff that's already been done.''

In the past, European musicians largely marched in step to whatever developments were coming out of America, striving to keep abreast of successive shocks announcing the new beginning with ragtime. But now a small group of musicians, most notably in France and Scandinavia, is taking the creative initiative and going its own way with the music. These musicians are embracing the liberating potential of jazz as dance music, taking elements from the European house, techno, drum 'n' bass and jungle scenes, and in so doing are re-establishing jazz's long lost links with popular culture. It is unlikely, however, that the new music will be in evidence at this year's JVC Jazz Festival, which begins in two weeks.

The music, called the European new jazz by musicians and critics, is not strictly acoustic, like much of mainstream American jazz, yet neither is it completely electronic. Bending improvisation around familiar and unfamiliar sounds and rhythms, this European jazz is moving out of the jazz club and into club culture, and young people are willing to line up around the block to hear it. While there have been experiments by American jazz musicians in combining jazz and hip-hop, like Miles Davis's ''Doo Bop,'' Gary Thomas's ''Overkill'' and Don Byron's ''Nu Blaxploitation,'' the results merely confirmed the seeming incompatibility of jazz and rap. In contrast, drum 'n' bass is not too far removed from driving jazz rhythms and can easily accommodate jazz improvisation. This reliance on specifically European club-culture styles differentiates the new music from the kind of experimental jazz coming from the Chicago underground and the New York downtown scene.