* FTSEurofirst 300 gains 0.4 pct, up about 5 pct in 2 weeks
* Europe stocks see record $17 bln in inflows year-to-date
* Italian shares edge higher as Renzi set to form government
By Atul Prakash and Blaise Robinson
LONDON/PARIS, Feb 17 (Reuters) - European shares climbed to a three-week high in thin volumes on Monday, extending a strong two-week rally fuelled by record inflows from an increasing number of investors betting on the region's economic recovery.
Data showing brisk lending in China, the world's biggest metals consumer, boosted miners, with BHP Billiton and Glencore Xstrata rising 1.2 percent and 1.8 percent respectively. The European mining index, was among the top sectoral gainers, up 1.1 percent, while Britain's commodity-heavy FTSE 100 rose 1 percent.
The FTSEurofirst 300 of top European shares ended 0.4 percent higher at 1,337.06 points, the highest close since late January. However, volumes on the index, which has gained in eight of the past nine sessions, were just 69 percent of its 90-day daily average due to a holiday in the United States.
Data from EPFR Global showed European equity funds have enjoyed net inflows of $17 billion since the beginning of 2014, marking a record start to the year and in sharp contrast to massive outflows from emerging market funds.
"One of the most popular pairs trade at the moment is being 'long' on shares that have no exposure to emerging markets and 'short' on shares that have a strong exposure to them. This has worked really well in January and it could continue," said Nicolas Rousselet, head of hedge funds and managing director at Unigestion in Geneva.
EPFR said that within Europe, equity funds focused on Italy and Spain have been leading the way in terms of inflows. Both countries have recently seen their bond yields retreat sharply.
Italian 10-year government bond yields hit an eight-year low on Monday, after ratings agency Moody's lifted its outlook on the country's credit rating to 'stable' from 'negative' and as Rome prepared for a new government.
"Investors are quite sanguine about the economic and political situation in peripheral Europe, and that's a very positive signal," said David Thebault, head of quantitative sales trading at Global Equities in Paris. "Ten-year bond yields continue to fall across the board, a sign of stability which has prompted a lot of investors to come back."
Italy's FTSE MIB was up 0.1 percent after outperforming the wider market on Friday with a 1.6 percent rally as investors welcomed the prospect that centre-left leader Matteo Renzi will become prime minister.
The MIB is up nearly 8 percent so far this year, trading at a 2-1/2 year high and strongly outperforming a 1.6 percent rise in the FTSEurofirst 300 in 2014.
European shares have been supported by relatively good corporate results in the current earnings season, with 58 percent of companies reporting in-line or better-than-expected profits, according to Thomson Reuters Starmine.
While in absolute terms net profits are still falling, a pick-up in corporate revenue, up 2.3 percent overall, and a slight improvement in economic growth in the euro zone is fuelling investors' hopes that earnings will pick up this year.
Bucking the trend on Monday, Norwegian fertiliser producer Yara fell 2.8 percent, the top decliner on the FTSEurofirst 300, after UBS cut its stance on the stock to "neutral from "buy".
Neste Oil dropped 4.4 percent after Nordea lowered its rating on the Finnish oil refiner to "hold" from "buy", citing uncertainty over U.S. policies on biodiesel, including volume targets and tax credits.
Europe bourses in 2014:
Asset performance in 2014:
Today's European research round-up