* FTSEurofirst 300 down 0.3 pct
* German ZEW expected to show brightening picture of economy
* Investors welcome prospect of new Italian government
* BHP fails to lift miners after strong rally
By Alistair Smout and Joshua Franklin
LONDON, Feb 18 (Reuters) - German stocks outperformed regional peers in cautious trade early on Tuesday ahead of data expected to show improved sentiment over Europe’s biggest economy, while top European shares edged off three-week highs.
Investors were also cheered by Italian politics, where centre-left leader Matteo Renzi has received a mandate to form a new government, promising rapid tax, labour and institutional reforms to revive a deeply troubled economy.
The German DAX held steady as investors anticipated the ZEW economic think-tank’s poll of German economic sentiment for February, due at 1000 GMT. The survey is seen steady at 61.7, while the forecast for current conditions is expected to rise to 44 from 41.2 in the previous month.
A positive reading could lend fresh support to the region’s equities after Germany and France posted stronger-than-expected growth data.
The German index outperformed drops on the French CAC and Spanish IBEX. Germany’s strength is seen as complicating policy decisions from the European Central Bank, which is considering taking action to fend off possible deflation at their meeting next month.
“It is a very difficult balancing act that the ECB’s got in terms of setting policy for varying economies at what might be different stages in their progress,” Keith Bowman, equity analyst at Hargreaves Lansdown, said.
“Germany has been the centre of strength and there are other economies that are in a different place.”
The Italian FTSE MIB edged 0.1 percent higher.
The broader pan-European FTSEurofirst 300 was down 0.3 percent at 1,333.53 at 0859 GMT, just off its highest levels since January.
The index has gained 5.2 percent in just eight sessions, fuelled by a rally in basic resources stocks, which were a top sectoral faller in Tuesday.
Good results from heavyweight miner BHP Billiton failed to spark the sector, which suffered from a weaker copper price.
“The BHP results didn’t look too bad, but after a good run-up and with a weaker metal price, other miners are in negative territory,” Manoj Ladwa, head of trading at TJM Partners, said.
“It should be a pretty good year for the mining stocks... with the cost-cutting measures they’ve taken. But if the broader market is going higher, it’s going to need the commodity stocks to push on from here.”
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Asset performance in 2014:
Today’s European research round-up