(For a live blog on European stocks, type LIVE/ in an Eikon news window)
* British parliament votes on Sat after deal in Brussels
* FTSE gains as sterling rally fizzles out
* Ericsson's shares touch 3-month high after results (Updates to market close)
By Sruthi Shankar
Oct 17 (Reuters) - European shares edged lower on Thursday, as strong earnings from Sweden's Ericsson were offset by fading optimism over the Brexit deal amid investor worries about its support in the British parliament.
The pan-European STOXX 600 index closed down 0.1% after gaining as much as 0.9%, as investors initially cheered news that the European Union and Britain had clinched a deal on the terms of Britain's exit from the bloc.
Shares in domestically focused British companies and Irish firms, which have come to be seen as a barometer on Brexit sentiment, gave up gains as the Northern Irish Democratic Unionist Party (DUP) said it would vote against the accord at an extraordinary session on Saturday.
The FTSE midcap index closed up just 0.16%, while Irish stocks dropped 0.9% amid doubts over whether Prime Minister Boris Johnson will be able to win the British parliament's approval for any deal.
"Unfortunately, it is too early. I wouldn't be taking any direction at this point. It doesn't make sense to be taking steps either way on sterling at this point," said Michael Bell, Global Market Strategist at JP Morgan.
The pound saw wild swings, sending London's internationally focused FTSE 100 lower initially but the index closed up 0.2% with help from blue-chip firms.
France's CAC 40 eased 0.4% after hitting a fresh 12-year high earlier, while Germany's DAX closed down 0.1%, although near its strongest level in over a year. An index of eurozone stocks fell 0.2%.
"The deal should be seen as a better scenario for both sides (Britain and the EU) than a no-deal...but Germany is sort of stuck in a system where global trade is declining. It's a similar situation for the rest of Europe," said Art Baluszynski, head of research at Henderson Rowe.
Fears of a slide into recession continue to dog Europe and not all earnings were upbeat, with Swiss banking software maker Temenos tumbling more than 15%, its worst day in more than five years, after traders said third-quarter core profits missed expectations.
Swedish telecoms gear maker Ericsson was a bright spot, jumping 6% to hit a three-month high after posting quarterly core earnings that were well ahead of expectations. Shares of Finnish peer Nokia also gained 2%.
"There was a consensus view on Ericsson that maybe they've disappointed on the margins which was holding people back," said Mark Taylor, sales trader at Mirabaud.
"But there's a lot of demand to get into the 5G theme, and Ericsson's probably the biggest, most liquid name in Europe to play that theme."
Nestle was the biggest drag on the benchmark index as organic sales growth dipped in the third quarter, outweighing the announcement of a plan to buy back up to 20 billion Swiss francs ($20.13 billion) in shares.
Shares of Pernod Ricard fell 4.2% after the spirits maker missed expectations for quarterly organic sales, reflecting slower growth rates in China and India. French car parts group Faurecia dropped 6.5% after posting lower-than-expected third quarter sales.
Wirecard's shares, down over 2.5%, extended their slide in the wake of an FT report alleging its effort to inflate sales and profits. Shares in SAP SE and Capgemini came under pressure after weaker results from U.S. tech company IBM. (Reporting by Sruthi Shankar and Medha Singh in Bengaluru; additional reporting by Joice Alves in London, Editing by William Maclean)