European shares climb even as Spanish stocks take election hit

(Updates prices and adds quote)

* Spain's inconclusive election weighs on Madrid market

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

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

By Sudip Kar-Gupta

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 on forming a coalition government are expected to take weeks.

Spain's top-share IBEX 35 index fell 2.3 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 euro zone's Euro STOXX 50 index, losing between 1.5 percent and 3.4 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.

"I would not expect Spain to outperform, but I do not expect this to damage the European equity story," said Kevin Lilley, fund manager of the Old Mutual European Equity Fund.

"Europe is benefitting from several stimuli: European Central Bank quantitative easing, the lower euro which helps exports, and the lower oil price which puts money in consumers' pockets," added Lilley.

FTSE RISES

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.

Swedish telecom equipment maker Ericsson surged 5.4 percent, after settling a dispute with Apple over patent licensing, positioning the stock for its biggest daily gain since July 2014.

Volkswagen was also up 2.5 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," said Mark Priest, sales trader at ETX Capital.

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