Telecoms M&A helps keep European shares buoyant

* FTSEurofirst 300 up 0.2 percent

* Telecom Italia (Milan: TIT.MI - news) up as Telefonica agrees to raise stake

* Carnival (LSE: CCL.L - news) top faller as profit drops

* Technical analysts see scope for more gains

By Tricia Wright

LONDON, Sept 24 (Reuters) - European shares crept up on Tuesday as merger and acquisition activity in the telecoms sector outweighed downbeat U.S. and German data and a drop in profits for cruise operator Carnival.

Telecom Italia advanced 1.7 percent after Telefonica agreed to raise its stake in the Italian firm, adding to the recent chain of deals involving European companies.

That helped the FTSEurofirst 300 climb 0.2 percent to 1,258.18 points by the close. The index was pegged back by data showing U.S. consumer confidence slipped in September and a smaller-than-expected increase in German business morale, as measured by the Ifo index.

The euro zone's blue-chip Euro STOXX 50 (Zurich: ^STOXX50E - news) , meanwhile, rose 0.6 percent to 2,922.93 points.

Carnival topped the FTSEurofirst 300 fallers' list, off 5.6 percent, after warning it could report an adjusted loss for the current quarter after posting a 30 percent drop in its third-quarter profit.

While markets have recently fallen foul of volatile trade, driven by uncertainty about when the U.S. Federal Reserve will scale back its monetary stimulus, some investors remain bullish on equities, focusing firmly on positive developments in Europe.

Dipesh Mesuria, senior research analyst at Berry Asset Management, cited ECB President Mario Draghi's comment on Monday that the central bank would inject more liquidity into banks if required as one such example, alongside M&A activity in Europe.

"There's a lot of positive stuff coming out of Europe; The U.S. is obviously creating a bit of noise but I'm not so worried about that," Mesuria said.

"After years of underinvestment, and building and strengthening their balance sheets, (companies) are finally ready to put some of that cash into long-term growth. I would only see M&A activity increasing from here."

Expectations of reduced stimulus in the United States - which abated when the Federal Reserve left policy unchanged at last week's meeting - were reignited by New York Fed President William Dudley on Monday.

The influential official said the U.S. central bank still aims to scale back the pace of its asset purchases later this year as long as the economy keeps improving.

Continued political discord over the U.S. budget also kept markets on edge, raising the prospect of a federal government shutdown if a deal is not struck by month-end.

Nevertheless, technical analysts saw scope for further gains on the Euro STOXX 50 - even after a powerful run which has seen it rise more than 7 percent in September.

"Although further short-term weakness is possible, and could even take the index back to 2,850 or so, there is little in the chart to suggest that a significant pull-back is imminent and a push up through 3,000 still looks possible in the near term," Charles Stanley (LSE: CAY.L - news) technical analyst Bill McNamara said.