* FTSEurofirst 300 flat up 0.2 percent
* Banks gain; Lloyds up on broker upgrade
* Axa falls as Asia-Pacific sale deal blocked
* Retailers fall after updates
* For up-to-the-minute market news, click on
By Brian Gorman
LONDON, Sept 9 (Reuters) - European shares edged higher on Thursday, with miners and banks up as an ECB member expressed optimism on the economy, though gains were capped by weaker retailers after gloomy updates. The euro zone is on the brink of a sustainable recovery and the European Central Bank is likely to discuss removing some support measures at its December meeting, Governing Council member Yves Mersch said on Thursday.
At 0924 GMT, the FTSEurofirst 300 index of top European shares was up 0.2 percent at 1,074.05 points, after rising 1 percent to a four-month closing high in the previous session.
The European benchmark had soared 62 percent between a lifetime low in March 2009 and the end of the year. But it is up less than 3 percent in 2010, as investors have worried about European debt levels and the strength of the economic recovery.
"The big issue is whether the market can break out of the range it's been in," said Bernard McAlinden, investment strategist at NCB Stockbrokers in Dublin. "Equity markets are getting used to the reality that economies are slowing quite significantly. The question is how much growth is required now to support equity markets."
Miners to gain included BHP Billiton, Rio Tinto and Xstrata , up between 1.2 and 2.4 percent.
The sector had been lower earlier as base metals fell sharply, with markets down more than 2 percent on average, on talk of a Chinese probe on funds, making zinc the big loser after open interest dropped almost 10 percent, traders said.
The heavyweight banking sector was among the gainers. Lloyds Banking Group rose 2.1 percent, boosted by an upgrade to "equal-weight" from "underweight" by Barclays Capital, and as the company agreed to sell its stake in housebuilder Crest Nicholson to U.S. investment company Varde.
Barclays rose 1.9 percent, bouncing from recent weakness.
Other banks to rise included BNP Paribas and Societe Generale, up 1 and 0.9 percent respectively.
But French insurer Axa fell 2 percent after Australia's competition regulator blocked National Australia Bank's $12 billion bid for AXA Asia Pacific for a second time, dashing NAB's efforts to cement its dominance in the world's fourth-largest wealth management market.
RETAILERS FALL
British retailers were lower after gloomy updates.
Shares in Home Retail fell 3.2 percent after Britain's No. 1 household goods retailer forecast a 20 to 25 percent fall in first-half profit and a full-year outcome in the bottom half of the current analyst range.
Wm Morrison Supermarkets, Britain's fourth-biggest grocer, fell 1.5 percent as new Chief Executive Dalton Philips said he expected a tough market this year.
HMV slumped 10.9 percent after the music, books and games retailer said its first-quarter sales had been hurt by the soccer World Cup.
Across Europe, Britain's FTSE 100 was up 0.6 percent, Germany's DAX rose 0.1 and 0.3 percent respectively.
German utilities, gainers earlier in the week on plans to extend the lifespans of nuclear power plants, were lower. E.ON fell 1.5 percent after Morgan Stanley cut its target price, with an "underweight" rating. RWE fell 1.6 percent.
The Bank of England looks set to keep interest rates at a record low of 0.5 percent on Thursday -- and probably well into next year -- to keep the recovery on track in the face of austerity measures and a weakening U.S. economy. (Editing by Hans Peters)