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* FTSEurofirst 300 up 0.1 pct, Euro STOXX 50 up 0.3 pct
* Prospects of U.S. debt deal buoy equities
* Utility stocks, seen as defensive play, outperform
* Richemont slumps after Asia sales growth slows
By Sudip Kar-Gupta
LONDON, Jan 21 (Reuters) - European shares edged up on Monday, moving back towards their recent near-two-year high, helped by moves to break a budget impasse in the United States and by gains in the utilities sector.
Traders said the longer-term outlook remained bullish for European stock markets, with some key indexes falling back from technically "overbought" levels.
The pan-European FTSEurofirst 300 index rose by 0.1 percent to 1,164.98 points at around midday, heading back to the 1,170.29 points level reached earlier this month - its highest since early March 2011.
The euro zone's blue-chip Euro STOXX 50 index advanced by 0.3 percent to 2,717.83 points.
Traders cited as a factor expectations a political deal will be reached in the United States to raise the country's debt ceiling, after the Republican party said it would seek to pass a three-month extension of federal borrowing authority next week.
"A positive impulse out of the U.S. - as the debt ceiling impasse seems to have been overcome - may revive the appetite for shares, but the impact today will be limited," said Gekko Global Markets senior sales trader Anita Paluch.
U.S. markets are closed on Monday for a public holiday.
The STOXX Europe 600 utility index was the best-performing European equity sector, rising by 0.8 percent. Utilities are often favoured in times of economic uncertainty for their relatively high dividend yields and stable profits.
Royal London Asset Management European equity fund manager Andrea Williams said she held utility GDF Suez, which was up 1.5 percent, in her portfolio but preferred the telecoms sector to utilities.
"We prefer the telecoms stocks to utilities because they have less indebted balance sheets," said Williams.
Danish industrial enzymes maker Novozymes also performed well, topping the FTSEurofirst 300 index's leaderboard with a 6.3 percent rise after it reported a bigger-than-expected rise in fourth quarter operating profits.
However, Swiss luxury goods group Richemont slumped 5.6 percent to make it the worst-performing stock on the FTSEurofirst 300 after Richemont said sales growth had ground to a halt in the Asia-Pacific region.
Traders said technical analysis charts pointed to a long-term bullish outlook for European shares.
"We're still optimistic on valuations and on the economic conditions improving," said Williams.
The Euro STOXX 50 index has risen by more than 30 percent since mid-2012 after the European Central Bank pledged fresh measures to protect the euro from the effects of the region's sovereign debt crisis.
Returns on euro zone equities were 9.5 percent above the triple-A rated German government bond, while U.S. shares offered a return 7.5 percent higher than the 10-year Treasury, Datastream data showed.
The relative strength index (RSI) reading on the Euro STOXX 50 has also dipped below the 70 point mark in recent sessions - indicating the index is no longer in technically "overbought" territory which traders sometimes use as a signal to sell.
Traders said that even though the global economic outlook remained uncertain, with Europe still struggling with its sovereign debt crisis, equity markets had been resilient, with many buying stocks on the cheap when the market fell.
"Bad news is taken well and good news is taken even better," said Toby Campbell-Gray, head of trading at Tavira Securities.