October 17, 2013 / 4:49 PM / 4 years ago

European shares creep higher, led by BSkyB

* FTSEurofirst 300 up 0.2 percent

* Volatility index signals drop in investor risk aversion

* BSkyB gains as revenues rise

By Tricia Wright

LONDON, Oct 17 (Reuters) - European shares inched higher on Thursday, steadying after a recent sharp rally, as investors shifted their focus onto corporate news following an eleventh-hour deal in Washington to avert a U.S. debt default.

Britain's dominant pay-TV provider BSkyB led the market higher, up 7.1 percent, as analysts homed in on the fact that a rise in its revenues showed it had managed to fend off challenges to its sports offering from rival BT.

The broader market paused following the U.S. budget deal which was seen as largely priced into equities and with any sense of relief it gives overshadowed by concerns over the temporary nature of the agreement.

The FTSEurofirst 300 index of top European shares closed up 0.2 percent at 1,268.09 points, having surged more than 3 percent in the past week on expectations the U.S. Congress would reach a deal before the Oct. 17 deadline.

The euro zone's blue-chip Euro STOXX 50 index was down 0.2 percent at 3,010.39 points, retreating from a 2-1/2 year high hit on Wednesday.

"We've got a bit of relief that it's all out of the way but we're still going to have to revisit it in two or three months' time," CMC Markets senior market analyst Michael Hewson said.

"It's going to keep people cautious ... I'd be very surprised if we (equity markets) started racing higher."

The Euro STOXX 50 Volatility index, Europe's widely-used gauge of investor sentiment, dropped 9.5 percent on Thursday to hit a three-week low.

The index, known as the VSTOXX, is used to measure the cost of protecting stock holdings against market pull-backs as it usually moves in the opposite direction to cash equities.

Late on Wednesday, the U.S. Congress approved a last-minute agreement to end a partial government shutdown and pull the country back from the brink of a historic debt default that would have had damaging ripple effects across the world.

The deal offers only a temporary fix, however, as it funds the U.S. government until Jan. 15 and raises the debt ceiling until Feb. 7, leaving open the prospect of another bitter budget fight and shutdown early next year.

Fawad Razaqzada, market strategist at GFT Markets, was upbeat on the prospects for equities, although he saw scope for some near-term profit-taking.

He noted that the Euro STOXX 50 is slipping after testing the upper resistance trendline of a long-term upward channel around 3,020. "While the trend is clearly bullish, it may head lower from here ... The next support is seen around 2,957, which was formerly resistance."

Analysts reckon the U.S. Federal Reserve could further delay the scaling back of its monetary stimulus given the detrimental effect on the economy of the uncertainty created by the fiscal crisis and government shutdown.

Markets had expected the Fed to announce in September it would cut its bond purchases, and when that didn't happen they shifted forecasts to December. Now, many anticipate no action until next year.

"We are expecting (tapering) at earliest in December 2013 - beforehand we anticipated earlier," said Asoka Woehrmann, co-chief investment officer at Deutsche Asset & Wealth Management.

"Expansive monetary policy is quite positive for the equity markets ... We are expecting into the end of the year a higher S&P (and) Euro STOXX."

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