* FTSEurofirst 300 up 0.3 pct, most national markets up
* Gains more muted than in much of Asia, U.S.
* Geopolitical tensions keep bonds, euro trading cautiously
* Euro hits 8-month lows against dollar, bund yields fall
By Lionel Laurent
LONDON, July 23 European equities edged higher
in early trade on Wednesday, extending gains from Tuesday after
a batch of positive earnings and U.S. economic data briefly
calmed worries over stretched valuations and the pace of
However, the prospect of more sanctions against Russia over
the Ukraine crisis and a downed Malaysian airliner kept risk
aversion on the table in the bond market, where German 10-year
yields nudged down to 1.16 percent, just shy of record lows.
The euro also hit an eight-month low against the dollar on
concerns that tougher Russian penalties might hit fragile euro
The pan-European FTSEurofirst 300 share index was
0.3 percent higher at 0742 GMT, buoyed by better-than-expected
earnings from German automaker Daimler and Dutch
paint-and-chemicals firm AkzoNobel.
Gains were more muted in Europe - where the pace of economic
recovery and the impact of a Russia slowdown have worried
investors - than in much of Asia or the United States, where
stocks hit fresh milestones and where earnings from bellwethers
such as Apple Inc and Verizon topped forecasts.
"Geopolitical tensions are preventing a better market
development in Europe," said Christian Stocker, equity
strategist at UniCredit.
"Markets will be dominated by consolidation moves due to the
uncertainty, combined with high valuations."
Caution also rippled through fixed-income markets, where
German bund yields fell and the euro extended losses to hit to
$1.3455, its lowest since November 2013, with investors
eying more losses in coming days.
Fears that the euro-zone economy might take a hit from fresh
EU sanctions being considered against Russia, as well as a
diverging rate outlook for the United States and the euro area,
kept investors from taking more bullish bets on Europe.
"There is quite broad-based pressure building on the euro
and there are a number of factors driving that. Europe is
directly exposed to Russia by trade - Germany in particular - so
sanctions could potentially have a negative impact on the euro,"
said Ian Stannard, a currency strategist at Morgan Stanley.
Israeli forces pounded multiple sites across the Gaza Strip
on Wednesday, including the enclave's sole power plant, and said
they were meeting stiff resistance from Hamas Islamists, as
diplomats sought to end the bloodshed.
"In light of the geopolitical tensions that are not yet
completely resolved in Ukraine and the Middle East there's not
much potential for Bund yields to pop higher any time soon,"
said Christian Lenk, a strategist at DZ Bank.
MSCI's broadest index of Asia-Pacific shares outside Japan
rose 0.5 percent after earlier pushing to a
three-year peak, though Japan's Nikkei stock average
closed down 0.1 percent as investors kept their focus on
tensions in Gaza and the Middle East.
The declaration of victory in Indonesia's presidential
election by a candidate seen as good for business sent
emerging-market stocks up to a 17-month high.
Indonesian shares rose nearly 1 percent after
reform-minded Joko "Jokowi" Widodo was declared the winner of
Indonesia's election while the rupiah set a two month
More broadly, MSCI's emerging market equity index
touched levels last seen in early 2013, emerging from the
nervousness about the impact of the downing of a Malaysian
airliner over Eastern Ukraine.
Moscow shares were more than 1 percent higher after
signs of cooperation between pro-Russian Ukrainian separatists
and investigators looking into the crash of a Malaysian airliner
in Eastern Ukraine.
In currencies, the Australian dollar, already on a bullish
footing after the country's central bank chief on Tuesday chose
not to talk down the currency, added about 0.4 percent to buy
$0.9432. It spiked to a nearly two-week high of $0.9439
on surprisingly high core inflation figures that dented rate cut
U.S. crude dropped about 0.4 percent to around $102 a
barrel, falling for a second consecutive session as oil supplies
were unaffected by continuing violence and tension in Iraq,
Ukraine and Gaza.
(Reporting by Lionel Laurent; Additional reporting by Atul
Prakash, Alistair Smout, Anirban Nag, Emelia Sithole-Matarise
and Chris Vellacott)