European shares advance even as Spanish stocks take election hit

* Spain's IBEX down 1.8 pct, FTSEurofirst 300 up 0.7 pct

* Spain's inconclusive election weighs on shares

* Ericsson (LSE: 0O86.L - news) soars after settling dispute with Apple (LSE: 0R2V.L - news)

* Volkswagen (Other OTC: VLKAF - news) up, new Lamborghini CEO in pipeline

* ITV (LSE: ITV.L - news) gains on bid speculation, Britain's FTSE up 0.9 pct

By Kit Rees

LONDON Dec 21 (Reuters) - European shares edged higher on Monday, buoyed by gains in carmaker Volkswagen and telecoms equipment manufacturer Ericsson, although an inconclusive result in Spain's election hit the country's stocks.

Neither Prime Minister Mariano Rajoy's conservatives nor left-wing parties won a clear mandate to govern in Sunday's poll, casting fresh uncertainty over the outlook for Spain's reform programme and broader economy. Talks to form a coalition government are expected to take weeks.

Spain's top-share IBEX 35 index fell to trade down 1.8 percent, while Spanish 10-year government bond yields hit one-month highs after the election.

Spanish companies Banco Santander (Amsterdam: 817651.AS - news) , Banco Bilbao Vizcaya Argentaria, Iberdrola (Amsterdam: ID6.AS - news) and Telefonica (Amsterdam: TA6.AS - news) were the top fallers on the European blue-chip STOXX50 index, all down between 1 percent and 2.3 percent.

The broader European market, however, was trading in positive territory, with the FTSEurofirst 300 index up 0.7 percent at 1,429.11 points and the Euro STOXX 50 index 0.8 percent higher at 3,272.76 points by 0924 GMT.

"Having been prepared for negativity after Spain, other indexes have shrugged it off. Volumes are low and the holiday exodus is beginning, so we're seeing reasonable moves on low volumes today," said Mark Priest, sales trader at ETX Capital.

Last week European shares retreated after a post-U.S (Other OTC: UBGXF - news) . Federal Reserve interest rate hike rally, weighed down by weak oil prices and a fall in supermarket group Casino's share price.

On Monday Casino rejected a report from research firm Muddy Waters, founded by short-seller Carson Block, that said the French retailer was one of the most "overvalued" companies it had come across. Its share price advanced by 0.3 percent.

Swedish telecom equipment maker Ericsson soared 7.3 percent, topping the FTSEurofirst index, after settling a dispute with Apple over patent licensing, positioning the stock for its biggest daily gain since July 2014.

German carmaker Volkswagen plans to limit the time staff can remain in certain roles in order to improve oversight at the company which said in September it had cheated U.S. emissions tests.

The California Air Resources Board said it was extending a deadline to approve or reject a diesel emissions repair plan submitted by the company, while the man who headed Ferrari (Xetra: 30092157.DE - news) 's Formula One team until 2014, Stefano Domenicali, could be appointed as the new chief executive of VW's Italian brand Lamborghini.

"Volkswagen have been playing down the impact of the scandal ... I think there will still be volatility moving forward, but if they are addressing the situation moving forward, there will be a light at the end of the tunnel," ETX Capital's Priest said.

Shares (Berlin: DI6.BE - news) in Britain's biggest free-to-air commercial broadcaster ITV gained more than 4 percent following a media report on Saturday that Comcast was planning an 11 billion pound ($16 billion) bid for the company.

It (Other OTC: ITGL - news) was a top riser on Britain's FTSE, up 0.9 percent to 6,105.32.

Dutch storage company Vopak rose more than 3 percent after saying at the weekend it would sell its British operations for 335 million pounds ($499 million). (Reporting by Kit Rees and Alistair Smout; Editing by Gareth Jones)