European shares edged up on Thursday thanks to Swiss stocks climbing as the Zurich bourse reopened after a holiday, with luxury goods issues among the top gainers.

The FTSEurofirst 300 rose 0.2 percent to 1,159.37 by 14:31 SA time, having jumped 2.1 percent the previous session on relief a last-minute US budget deal was struck to avoid huge tax hikes and spending cuts that could have pushed the world's largest economy into recession.

While the FTSEurofirst 300 is now at 20-month highs, however, the stage looks set for more potentially bruising US showdowns over the next two months on spending cuts and an increase in the nation's borrowing limit.

“We've had a number of these rallies in the past few months where basically policymakers step back from the precipice, but underneath it all what's really changed? They've deferred the difficult decisions to further down the line,” Michael Hewson, senior analyst at CMC Markets, said.

The FTSEurofirst 300 leaders' board was made up solely of Swiss stocks, led by luxury goods group Richemont, which enjoyed a 5.2 percent advance, while peer Swatch added 4.8 percent, helped by upbeat manufacturing data released over the holiday period from China, a big market for the sector.

Traders also cited a Morgan Stanley note saying the decline seen in Chinese watch and jewellery sales from the second half of 2011 to the second half of 2012 was bottoming out, with Swatch best placed to outperform.

The euro zone's blue-chip Euro STOXX 50 meanwhile, slipped 0.6 percent to 2,695.82, having moved into “overbought” territory on Wednesday with a 2.9 percent leap that left it vulnerable to a pullback.

CMC's Hewson reckons the index will find support within the gap higher seen at Wednesday's open, between 2,635 and 2,659, and that it will continue to drift higher to the 2,800 level, around the July 2011 highs, over the next couple of months.

Mining stocks ran into profit-taking, having lurched 4.6 percent higher on Wednesday on the back of upbeat Chinese data and the US budget deal.

Next was a gainer on Thursday, up 2.2 percent in brisk trading volume, after the British retailer nudged up its full-year profit forecast.

Next kicked off the post Christmas UK retail reporting season by saying it expected a year to the end of January 2013 pretax profit of 611-625 million pounds against previous guidance of 590-620 million pounds.

Trading volume in Next shares came to 102 percent of its 90-day daily average.

“Retail bellwether Next had it all to do as the first retailer to report on Christmas trading, and as on so many occasions before, it did not disappoint. Where an in-line performance would have been quite good enough to kick off the all important retailer January trading statements, Next actually upped guidance to the top end of expectations,” said Richard Curr, head of dealing at Prime Markets.

“Prime Markets see little on the horizon to stand in the way of the Next retailing juggernaut,” Curr added, recommending investors buy the stock with a 4,000 pence target. - Reuters