* FTSEurofirst 300 up 0.1 percent
By Tricia Wright
LONDON, Feb 27 (Reuters) - European shares crept higher on Wednesday, steadying after the previous session's sharp losses helped by the U.S. Federal Reserve's defence of its asset-buying, though jitters over the euro zone kept a lid on gains.
Fed Chairman Ben Bernanke strongly defended the U.S. central bank's monetary stimulus on Tuesday, which eased worries over a possible early retreat from bond purchases.
The FTSEurofirst 300 was up 0.1 percent at 1,151.18 by 1204 GMT, following Tuesday's 1.4 percent drop when Italy's election stalemate took its toll on investor sentiment.
Much of the attention in morning trade was focused on an Italian bond auction, where the country's 10-year debt costs climbed more than half a percentage point, reviving concern about the future of the euro zone.
"I remain of the opinion that we've seen the highs in the short-term and we're due a bit of a correction," Michael Hewson, analyst at CMC Markets, said.
"Basically, Italy will not have a government of any shape or form for the next two or three months, so really it's just a question of being defensive, taking a little bit of risk off the table."
The euro zone's blue-chip Euro STOXX 50 index was 0.5 percent firmer at 2,582.88, having sunk 3.1 percent to three month lows on Tuesday, extending its retreat from an 18-month high of 2,754.80 points hit at the end of January.
Bouygues jumped 8.3 percent after the construction-to-media conglomerate unveiled a 3 percent rise in full-year sales, whilst maintaining its dividend.
Airbus parent EADS advanced 6.4 percent as it predicted higher profit this year on the heels of stronger than expected 2012 earnings and a clampdown on costs.
"Strong cash generative growth and profit performance look set to continue... Notwithstanding risks, not least the A350 programme, we see the risk/return profile as compelling," Investec Securities said in a note, repeating its "buy" rating.
Charts painted a gloomy picture. Charles Stanley technical analyst Bill McNamara highlighted that the Euro STOXX 50 has entered a new volatile phase, with the drop from Monday's peak to Tuesday's closing low a hefty 4.8 percent.
"A bounce today looks likely but this rising volatility does look like it could lead to lower prices in the medium-term, with 2,500 a realistic downside target," he said.
Lynnden Branigan, technical analyst at Barclays Capital, however, said there were a couple of support levels preventing them from becoming too bearish on the index.
"Ideally we would like to see a close below the 10 Dec low at 2,567 and a break below 2,552 (Fibonacci level) to signal a move toward the 2,500 area," he said.
Both the Euro STOXX 50 and the FTSEurofirst 300 index are 20-25 percent above their 2012 lows, since a pledge last year by the European Central Bank (ECB) to protect the euro currency from the area's debt crisis did much to bolster investor confidence in the region.
BCA Research wrote in a note that the full-year outlook for global equities remained positive, given the backdrop of a gradual improvement in the world economy and the fact that equities offer more than cash or bonds, where returns have been hit by record low interest rates.
"This creates a 'sweet spot' for equity investors - modest growth, low inflation and negative real rates will support corporate earnings and embolden risk taking," wrote BCA Research.