European shares supported by tobacco merger plan, earnings

* BAT rises after offering to buy out U.S. firm Reynolds

* SAP (Amsterdam: AP6.AS - news) , Valeo (LSE: 0NR3.L - news) , Yara rise on well received earning updates

* Daimler (LSE: 0NXX.L - news) drops after results, weighing on auto sector

* European earnings seen down 13 pct in third quarter (ADVISORY- Follow European and UK stock markets in real time on the Reuters Live Markets blog on Eikon - see cpurl://apps.cp./cms/?pageId=livemarkets) Adds details, updates prices)

By Danilo Masoni

MILAN, Oct (Shenzhen: 000069.SZ - news) 21 (Reuters) - European shares inched higher on Friday, buoyed by a $47 billion tobacco buyout plan and some well-received earning updates from companies including Europe's largest software maker SAP.

British American Tobacco rose 2.6 percent after it had offered to buy U.S. tobacco group Reynolds American (NYSE: RAI - news) to create the world's biggest listed cigarettes company.

Analysts welcomed the possible deal saying it could boost BAT's earnings after cost savings estimated at $400 million and strengthen its grip on the key U.S. market.

"In strategy terms, the key is simply scale," analysts at Berenberg said in a note. "Reynolds American and BAT have a technology agreement and cooperate on many issues so this is largely about taking control of a significant share of the world's largest profit pool."

By 0828 GMT, the pan-European STOXX 600 index was up 0.1 percent, building on a two-week high hit in the previous session when dovish remarks from European Central Bank chief Mario Draghi further weakened the euro.

The index was also supported by some well-received earnings updates including from SAP, car parts supplier Valeo (Berlin: 32745150.BE - news) and fertiliser firm Yara.

However, the overall picture was mixed. European third-quarter corporate earnings are seen falling 13 percent, as any recovery remains elusive, with the energy and financial sectors seen taking the biggest hits, according to Thomson Reuters I/B/E/S/ data.

SAP rose 2.9 percent after Europe's biggest software company raised the lower end of its 2016 operating profit forecast range, anticipating a strong fourth quarter due to healthy orders for its products.

Valeo rose 3.9 percent, leading gainers on the STOXX index, as it lifted its 2016 profitability target after posting a 16 percent gain in third-quarter sales.

Yara rose 5.9 percent after core profit and revenues at the Norwegian based group fell less than expected in the third quarter.

Daimler, however, fell 2.5 percent after the German car maker kept its forecast for a slight rise in adjusted full-year EBIT but trimmed its forecasts for sales volume. (Reporting by Danilo Masoni; Editing by Atul Prakash and Toby Chopra)