* FTSEurofirst 300 up 0.2 percent
* Investors eye outcome of Italy election
* Viviendi rises on reports of stake sale
* Pearson, AB Foods drop after updates
By David Brett
LONDON, Feb 25 (Reuters) - European shares added to a cautious recovery from multi-month lows early on Monday ahead of the end of voting in a closely-fought election in Italy, seen as crucial to efforts to dig the euro zone out of crisis.
By 0835 GMT, the FTSEurofirst 300 was up 2.84 points, or 0.2 percent at 1,168.42, in tandem with overnight gains in Asia and a bullish finish in the U.S. on Friday.
Britain’s FTSE 100 index rose 0.4 percent, shrugging off the loss of the first of the country’s triple-A credit ratings late on Friday, which knocked both sterling and UK government bond prices.
The euro zone blue chip index climbed 0.9 percent to around 2,654, extending its bounce off near three-month lows hit last Thursday.
More signs from the Federal Reserve late last week somewhat soothed concerns it may withdraw economic stimulus sooner than expected and the broader outlook for continuing ultra-easy policy in both Japan and the United States underpin markets.
Italian stocks and bonds gained in early trade as a low turnout in the election encouraged investors to bet on a victory of a pro-reform centre-left coalition.
Achim Matzke, European stock indexes analyst at Commerzbank, said he saw euro zone blue chips stocks holding in a tight range until the outcome of the election in Italy is known.
“We have support around 2,580 and resistance around 2,675 and I expect the market to trade inside that range awaiting the results,” he said.
Last week’s equity sell-off was driven by the Fed’s minutes earlier in the week, which suggested it could ease back on the seemingly unlimited support which drove a surge in equities dating back to June last year.
Brewin Dolphin’s Guy Foster, however, said that sell-off had simply provided an opportunity for investors to access a market which had been running away from them.
Funds invested in European equities returned to posting net inflows last week as institutional investors moved away from lower-yielding money markets on expectations of further monetary stimulus and possible inflation, Lipper and EPFR Global data showed.
Berenberg Bank said the UK downgrade is likely to mean slightly looser monetary and fiscal policy, which usually benefits equities.
The cut weighed on the value of the pound, but that again would be another boost for equities on London’s blue chip index, around 70 percent of which derive their earnings from outside the UK.
Among individual movers, French media group Vivendi rose 2.6 percent after newspaper Folha de S.Paulo reported the firm is likely to close a deal in the coming weeks to sell a stake in Brazilian telecoms unit GVT.
Vivendi was also helped by a UBS upgrade to “neutral” from “sell” with the investment bank citing valuation grounds after the firm’s shares significantly underperformed the DJ STOXX 600 by 13 percent in 2013.
On the downside, British education and media group Pearson slipped 2.8 percent after said it expects this year’s earnings to be flat on 2012, while AB Foods shed 1.3 percent with analysts bemoaning the lack of potential upgrades after its trading update.
“Whilst trading remains strong, we question whether the market was looking for further Primark driven upgrades post the Q1 upgrades and in this respect we note the slightly lower new space guidance which may disappoint,” Shore Capital said in a note.
The Maker of Strepsils throat lozenges and Mucinex decongestant, Britain’s Reckitt Benckiser, topped the list of fallers, down 4.1 percent after the U.S. Food and Drug Administration (FDA) denied a citizen’s petition filed by the drugmaker and called time on Suboxone exclusivity.
“The U.S. FDA has chosen to deny Reckitt’s Citizen Petition on Suboxone, aimed at raising barriers to generics on the grounds of child safety, has approved two generic tablets and has referred Reckitt to the FTC around potential anti-competitive practices,” analysts at Investec said in a note, cutting the stock to ‘sell’ from ‘hold’.