* FTSEurofirst 300 ends up 0.2 pct
* Orange, Bouygues, Iliad drop as telecom merger hopes fade
* Carmakers rally after upbeat U.S. auto sales
PARIS, July 2 European shares inched up on Wednesday, adding to the previous day's sharp rally, though dashed hopes of merger moves among French telecoms companies kept a lid on gains.
Automakers were among the top gainers, with Daimler up 0.8 percent and BMW up 0.6 percent.
Data showed U.S. monthly auto sales reached levels not seen since before the financial crisis, and annualised figures were the best in eight years.
But shares in Orange, Bouygues, Iliad and Numericable tumbled 2.0-3.5 percent after Orange said it was dropping the idea of joining in the consolidation of France's telecoms market.
The stocks had rallied in recent months, boosted by expectation of a wave of mergers after a heated battle for the takeover of Vivendi's SFR mobile division, snatched by Numericable.
"While we all agree that there are further deals to be done across Europe, Orange doesn't seem to want to play ball, and the market is voting against that," said Veronika Pechlaner, who helps manage $13 billion of assets at Ashburton Investments.
Shares in French telecom gear maker Alcatel-Lucent surged 3.7 percent, however. JPMorgan analysts upgraded their rating on the stock to "overweight" from "neutral".
The FTSEurofirst 300 index of top European shares ended 0.2 percent higher, at 1,385.09 points, adding to a 0.9 percent rise on Tuesday.
The FTSEurofirst 300 has gained about 9 percent since mid-March, lifted by fresh European Central Bank stimulus measures as well as expectations that global growth is picking up.
"There are more signs that things are moving in the right direction in the developed economies," said Valentijn van Nieuwenhuijzen, head of multi-asset at ING Investment Management, which is "overweight" equities and has a positive bias on European stocks.
On Wall Street on Tuesday, the Dow Jones industrial average and the S&P 500 closed at record highs, after data showed manufacturing activity picked up in the United States and Asia. U.S. stocks were up again in early trade on Wednesday.
"The positive trend in U.S. equities is quite impressive, particularly for the Nasdaq, boosted by all the M&A and IPOs," FXCM analyst Vincent Ganne said.
Ahead of Thursday's U.S. non-farm payrolls figures, the ADP National Employment Report showed on Wednesday U.S. companies hired 281,000 workers in June, marking the biggest monthly increase since November 2012 and well above market expectations.
"These ADP figures are usually a good indication for the payrolls data," Ganne said.
Europe bourses in 2014: link.reuters.com/pap87v
Asset performance in 2014: link.reuters.com/gap87v
Today's European research round-up