* FTSEurofirst 300 up 0.3 pct, most national markets up
* Gains more muted than in much of Asia, U.S.
* Geopolitical tensions keep bonds, euro trading cautiously
* Euro hits 8-month lows against dollar, bund yields fall (Updates)
By Lionel Laurent
LONDON, July 23 (Reuters) - European equities edged higher in early trade on Wednesday, extending gains from Tuesday after a batch of positive earnings and U.S. economic data briefly calmed worries over stretched valuations and the pace of economic recovery.
However, the prospect of more sanctions against Russia over the Ukraine crisis and a downed Malaysian airliner kept risk aversion on the table in the bond market, where German 10-year yields nudged down to 1.16 percent, just shy of record lows.
The euro also hit an eight-month low against the dollar on concerns that tougher Russian penalties might hit fragile euro zone growth.
The pan-European FTSEurofirst 300 share index was 0.3 percent higher at 0742 GMT, buoyed by better-than-expected earnings from German automaker Daimler and Dutch paint-and-chemicals firm AkzoNobel.
Gains were more muted in Europe - where the pace of economic recovery and the impact of a Russia slowdown have worried investors - than in much of Asia or the United States, where stocks hit fresh milestones and where earnings from bellwethers such as Apple Inc and Verizon topped forecasts.
"Geopolitical tensions are preventing a better market development in Europe," said Christian Stocker, equity strategist at UniCredit.
"Markets will be dominated by consolidation moves due to the uncertainty, combined with high valuations."
Caution also rippled through fixed-income markets, where German bund yields fell and the euro extended losses to hit to $1.3455, its lowest since November 2013, with investors eying more losses in coming days.
Fears that the euro-zone economy might take a hit from fresh EU sanctions being considered against Russia, as well as a diverging rate outlook for the United States and the euro area, kept investors from taking more bullish bets on Europe.
"There is quite broad-based pressure building on the euro and there are a number of factors driving that. Europe is directly exposed to Russia by trade - Germany in particular - so sanctions could potentially have a negative impact on the euro," said Ian Stannard, a currency strategist at Morgan Stanley.
Israeli forces pounded multiple sites across the Gaza Strip on Wednesday, including the enclave's sole power plant, and said they were meeting stiff resistance from Hamas Islamists, as diplomats sought to end the bloodshed.