* FTSEurofirst 300 up 0.2 pct, gains 7.6 pct in December
* Greek stocks slip ahead of Greece's budget vote
* Hermes rises as LVMH increases stake in luxury group
By Blaise Robinson
PARIS, Dec 22 (Reuters) - European stocks inched higher on Wednesday in holiday-thinned trade, extending a sharp December rally that has brought a key index back to levels not seen since the collapse of investment bank Lehman Brothers two years ago.
A report that China was ready to buy 4-5 billion euros of Portuguese sovereign debt helped reassure investors, but wasn't enough to completely offset worries over the euro zone debt crisis, fuelled by protests in the streets of Athens ahead of a key austerity budget vote.
"The sovereign debt crisis is serious but investors should keep in mind that there are a lot of solutions, such as China buying some of the debt," said Christian Jimenez, fund manager and president of Diamant Bleu Gestion, in Paris.
The FTSEurofirst 300 index of top European shares closed 0.2 percent higher at 1,147.61 points. The index has risen 7.6 percent in December, on track to post its best monthly performance since July 2009.
Trading was muted, however, with volume on the FTSEurofirst 300 only 65 percent of the index's 90-day average daily.
The larger STOXX Europe 600 rose 0.1 percent to 281.45 points, extending this week's gains that has brought it back to levels last seen just before Lehman Brothers went bankrupt in September 2008 and threw financial markets into disarray.
GREEK WOES
Greece's benchmark index ATG, however, lost 0.7 percent on Wednesday, extending this year's slide to 34 percent. National Bank of Greece lost 3.5 percent and EFG Eurobank dropped 4.7 percent.
Late on Tuesday, Fitch Ratings said there was a growing probability it would cut Greece's credit rating to junk, highlighting worries over Athens' ability to pull itself out of a debt crisis that has shaken the euro zone.
Around Europe, UK's FTSE 100 index gained 0.5 percent, Germany's DAX index dipped 0.1 percent and France's CAC 40 lost 0.2 percent.
"The Christmas rally could continue after the holiday season as institutional investors will have to start investing in stocks in early January while, overall, price-earnings (P/E) ratios in the euro zone remain quite reasonable," Jimenez said.
The STOXX Europe 600 carries a forward P/E ratio of 10.9, well below a 10-year average of 13.8, according to Thomson Reuters Datastream.
Reuters polls showed on Wednesday investors are entering 2011 in a relatively bullish mood, raising equity holdings to a 10-month high, increasing exposure to high-yield credit and cutting back on government debt.
In individual stocks, ARM Holdings rose 9.1 percent after media reports that Microsoft is working on a version of its core Windows operating system for devices such as tablets, and plans to unveil a version of its software that runs for the first time on processors designed by ARM.
French luxury group Hermes gained 2.3 percent after LVMH raised its stake in it above 20 percent. That sparked speculation the world's largest luxury firm could buy all the shares not held by Hermes family members.
"If LVMH has raised its stake to 20.21 percent, and it clearly has the means to go much further, there is no reason to think it would want to stop before acquiring what's left of the float," a Paris-based trader said.
(Reporting by Blaise Robinson; editing by David Hulmes)