* FTSEurofirst 300 up 0.4 pct
* BP, Saipem fuel energy rally after results
* Deutsche Bank, UBS hit, raise buffers for legal costs
By Toni Vorobyova
LONDON, Oct 29 (Reuters) - European shares edged higher on Tuesday as estimate-beating results at BP and Saipem fuelled a surge in the oil sector, a laggard in this year's equity rally.
Adding to the upbeat crop of results, Finnish handset maker Nokia forecast a more profitable future for its NSN network equipment and software unit, sending its shares up 7 percent.
With the third quarter results season about a third of the way through, European companies have so far beaten earnings expectations by an average of 1.7 percent, behind their U.S. peers but on track to end two consecutive quarters of misses, according to Thomson Reuters StarMine data.
"Overall, it's a fairly mixed bag but with a bit of positive upside on earnings so far," said Neil Marsh, managing director of cash equities at Newedge.
"I still think we will have positive momentum going into the end of the year. Fundamentals look reasonably good, the economic data is not appalling like it has been, it's showing signs of at least bottoming out so it's fairly bullish at the minute."
The FTSEurofirst 300 rose 0.4 percent to 1,288.06, less than 5 points away from last week's five year peaks.
The energy sector was responsible for most of those gains, with heavyweight BP up 5.6 percent after it unveiled forecast-beating results and promised to sell more assets and return the proceeds to shareholders.
"The underlying numbers look close to expectations but the good news is an increase in the dividend, an extension of the buy-back programme and a commitment to keep capex flat in 2014," analysts at Liberum Capital said in a note.
The rebound in BP follows a tough year, when the shares gained roughly half as much as the broad European market while the oil and gas sector as a whole has been the second worst performer after basic resources, on concerns about falling crude prices and rising costs.
Negative market positioning and sentiment have set the bar relatively low for positive surprises.
Among the least-loved stocks has been Italian oil services group Saipem, which confounded market bets for a third profit warning on Tuesday by confirming its earnings outlook for the year.
Shares in Saipem jumped 4.7 percent on the news, which wrong footed an active short-selling market in the stock. Short sellers borrow shares they do not own and sell them on, in the hope of buying back the stock more cheaply later on.
As of Oct. 28, some 15.6 percent of Saipem's shares available to be borrowed were out on loan to short sellers, Markit data showed, a multi-year high if periods around dividend payments, when arbitragers borrow the stock for tax purposes, are excluded.
Volumes in Saipem were nearly six times their 90-day daily average, making it the most actively traded stock on FTSEurofirst 300, followed by UBS at five times the average.
Shares in the Swiss bank dropped 7.7 percent on news it has been ordered to hold extra capital in case it has to pay out more in legal settlements.
"They (regulators) are looking for a pound of flesh ... and I think that's the way it's going to be from now on," said Nick Xanders, head of strategy at BTIG. "The sector has started to roll over and I think it will continue."