* FTSEurofirst 300 index gains 0.6 percent
* Banks gain as JPMorgan positive says "buy"
* Prudential up as UBS bullish
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By Joanne Frearson
LONDON, March 22 (Reuters) - European shares edged higher on Tuesday, adding to the previous session's sharp gains and further retracing last week's hefty selloff as buyers emerged to tap cheap equity valuations.
By 0940 GMT, the pan-European FTSEurofirst 300 index of top shares was 0.6 percent higher at 1,113.95 points after surging 1.8 percent in the previous session partly on major merger and acquisition news in the telecom sector.
"European company exposure is quite limited in Japan and global GDP is still strong, with growth in the emerging markets still high," Andrea Williams, who manages 1.3 billion pounds ($2.12 billion) in assets for Royal London Asset Management, said.
"Company dividends are reasonable, earnings are growing, price-to-earnings ratios are cheap, we are overweight the cyclicals and like the insurance sector as they have good dividend growth."
The insurance sector, which had been heavily sold off after the Japan crisis, added to the previous session gains and featured among the best performers.
The STOXX Europe 600 Insurance rose 1 percent, with Prudential gaining 0.6 percent on a bullish note from UBS.
Elsewhere, the banking sector was in demand after JPMorgan said there was an excellent opportunity to "buy" global investment banks as the impact of the Japan crisis was limited.
The broker said top picks included UBS, BNP Paribas and Intesa Sanpaolo, which were between 1 to 2 percent higher.
MARKET RECOVERING
Brokers were positive strong corporate fundamentals would push the market higher.
"Despite the recovery in prices in recent days, we continue to believe the market has overestimated the impact of recent negative news events outside Europe, while largely ignoring some positive developments closer to home," Nomura analysts said.
The FTSEurofirst index fell 5.6 percent from the open on Friday March 11, the day of the Japan earthquake, to a low of 1066.62 on March 16. It has since recovered 4.4 percent, leaving it just 1.6 percent off a complete retracement.
Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a forward price-to-earnings ratio of 10.2, below a 10-year average of 13.6.
However, gains could be tempered by any negative news around Japan's nuclear disaster, violence in Libya and civil unrest elsewhere in the Middle East, traders said.
Across Europe, the FTSE 100 index was 0.3 percent higher, Germany's DAX was up 0.1 percent and France's CAC 40 rose 0.5 percent. (Reporting by Joanne Frearson; Editing by Hans Peters) ($1=.6143 Pound)