* Volumes 20 percent lower than during steep sell off
By Toni Vorobyova
LONDON, Feb 27 (Reuters) - Britain's FTSE 100 edged higher on Wednesday, with some investors using the previous day's steep fall to snap up stocks at cheaper levels, reassured by solid U.S. data and prospects of sustained central bank stimulus.
Federal Reserve Chairman Ben Bernanke said late on Tuesday that the benefits of the stimulus policies were clear, easing financial market concerns about the possibility of an early end to the measures which have helped support risk appetite globally.
Stronger-than-expected U.S. housing data gave the market a further boost in afternoon trade, helping buildings supplies group Wolseley add 2.3 percent.
The benchmark UK index FTSE 100 index closed up 55.44 points, or 0.9 percent, at 6,325.88 points, recovering around two-thirds of Tuesday's 85 point drop suffered after Italian elections ended in a stalemate.
However, volumes were around 20 percent lower than during the previous session's sell off, as investors remained concerned about the political uncertainty in Italy and the possible repercussions for the euro zone as a whole.
"It's only recovered a little bit of what it lost and the level of uncertainty remains quite pronounced," said Gerard Lane, equity strategist at Shore Capital.
"So I am looking at this market thinking it should be 500 points lower than it currently is."
The Italian centre-left bloc secured a majority in the lower house but cannot govern without a deal with either former prime minister Silvio Berlusconi, the man it blames for ruining Italy, or the anti-establishment 5-Star Movement.
Italy sold the maximum planned 6.5 billion euros ($8.5 billion) of debt at an auction on Wednesday but its borrowing costs jumped to multi-month highs as investors demanded higher yield premiums in the election aftermath.
Markets were also cautious with time running out for U.S. politicians to reach a deal to avoid or reduce the deep tax cuts which will be automatically triggered on Friday.
Wary of the broader macro uncertainty, investors looked for as much clarity as possible on the micro level, punishing any signs of vagueness from corporates.
Petrofac was the top faller among UK blue chips, down 6 percent after the British oil services firm forecast "good growth" but, in contrast to previous years, failed to set a specific target.
In contrast, pump-maker Weir added 7.5 percent after pledging "single digit revenue growth" this year, posting forecast-beating results for 2012 and raising dividends.
"It's more of a bottom-up, stock picking market," said Chris White, UK equity fund manager at Premier Asset Management.
"My approach would be to avoid companies which are too cyclical ... I like companies that I feel are able to deliver whatever the weather," he added, noting insurer Legal & General (LSE: LGEN.L - news) and supermarket retailer Tesco (Other OTC: TSCDY - news) among the potentially attractive stocks. ($1 = 0.7649 euros) (Reporting By Toni Vorobyova; Editing by Ruth Pitchford)