European shares advance even as Spanish stocks take election hit

(Updates prices)

* Spain's inconclusive election weighs on Madrid market

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

* ITV (LSE: ITV.L - news) gains on bid speculation

By Kit Rees

LONDON Dec 21 (Reuters) - European shares gained ground on Monday, buoyed by carmaker Volkswagen (Other OTC: VLKAF - news) and telecoms equipment manufacturer Ericsson, although an inconclusive Spanish election result hit the Madrid market.

Neither Prime Minister Mariano Rajoy's conservatives nor left-wing parties won a clear mandate to govern in Sunday's poll, casting further 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 2.1 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 2.8 percent.

The broader European market, however, was in positive territory, with the FTSEurofirst 300 index up 0.3 percent, while the Euro STOXX 50 rose 0.4 percent.

Britain's FTSE 100 rose 0.8 percent, with media group ITV lifted by a report that Comcast was planning an 11 billion pound ($16 billion) bid for ITV.

"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.

Swedish telecom equipment maker Ericsson soared 6.7 percent, after settling a dispute with Apple over patent licensing, positioning the stock for its biggest daily gain since July 2014.

Volkswagen also rose 2.7 percent. The company said it plans to limit the time staff can remain in certain roles in order to improve oversight at the company, which in September said it had cheated U.S (Other OTC: UBGXF - news) . emissions tests.

"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.

The FTSEurofirst and Euro STOXX 50 are both up by around 4 percent since the start of 2015, with economic stimulus measures from the European Central Bank having helped to support stocks in spite of political uncertainty in countries such as Spain and Greece. (Reporting by Kit Rees and Alistair Smout; Editing by Alison Williams)