* FTSEurofirst 300 up 0.2 pct, Euro STOXX 50 down 0.1 pct
* Euro STOXX 50 hovering around 2-1/2 year high
* Stocks still in 'sweet spot', says Lyxor AM's Asseraf-Bitton
By Blaise Robinson
PARIS, Oct 11 European stocks inched up in early trade on Friday, extending the previous day's rally, as investors waited to see if an agreement will be reached in Washington on the U.S. debt ceiling.
At 0740 GMT, the FTSEurofirst 300 index of top European shares was up 0.16 percent at 1,247.09 points, after gaining 1.7 percent on Thursday.
The euro zone's blue-chip Euro STOXX 50 index was down 0.08 percent at 2,967.06 points, hovering just below a 2-1/2 year high hit earlier in the session.
Stocks around the world had lost ground in the past three weeks after a deadlock in budget talks led to a partial shutdown of the U.S. government and sparked worries about negotiations on the country's debt ceiling.
On Thursday, President Barack Obama and Republican leaders appeared ready to end the deadlock after meeting at the White House, and talks continued into the night with one senior Republican saying an agreement could come on Friday.
"Even though investors get nervous when political tensions rise, the backdrop for equities remains quite positive: very accommodative central banks, improvement on the macro front, and relatively good corporate fundamentals," said Jeanne Asseraf-Bitton, head of global cross asset research at Lyxor Asset Management, which has $98 billion under management.
"It's sort of a 'sweet spot' for stocks. Now, with the earnings season set to start, we need to see an improvement in the earnings momentum. It has improved lately in Europe, although it remains negative for now."
Around Europe, UK's FTSE 100 index was up 0.2 percent, Germany's DAX index up 0.2 percent, and France's CAC 40 down 0.1 percent.
French hotel group Accor topped the FTSEurofirst 300 leader board, with a 2.5 percent rise after investment bank Citigroup's upgraded the stock to a "buy".
Darren Courtney-Cook, head of trading at Central Markets Investment Management, said even a short-term extension to the U.S. debt limit would be enough to soothe investors' nerves.
"Even if they just kick the can down the road again, the fact that there won't be a default is why the markets would take it so positively. There may be some volatility going up to the wire, but most people expect a year-end rally," he said.