LONDON - European shares edged up to a three-week closing high on Thursday with telecom shares leading the advance after soothing earnings results and airlines gaining ground on merger news.

But gains were limited by weaker financial stocks and a decline in energy and mining shares following a drop of 0.8 to 3.9 percent in prices of crude oil CLc1, copper MCU3, aluminium MAL3, nickel MNI3 and zinc MZN3.

The FTSEurofirst 300 .FTEU3 index of top European shares ended up 0.1 percent at 1,014.91 points, the highest close since Oct. 21. The index is up 22 percent in 2009 and has surged 57 percent since hitting a record low in March.

Telecom shares were among the top gainers after Britain's BT Group (BT.L) increased its outlook for the full year and Telefonica (TEF.MC) said its recession-hit Spanish business was shrinking more slowly.

BT Group rose 3.7 percent and Telefonica was 1.1 percent higher. TeliaSonera (TLSN.ST) climbed 6.2 percent after the Nordic region's biggest telecom operator and Alfa Group said they would combine their Eurasian mobile assets.

I am fundamentally sceptical, but the market still has a short-term underlying positive bias, said Giuseppe-Guido Amato, strategist at Lang & Schwarz.

We can get a setback here, but we have seen that we can recover very quickly after having a losing streak and that's a good sign, he added.

The market got some support from data showing the number of U.S. workers filing new claims for jobless insurance fell for the second week in a row and the four-week moving average of claims was the lowest in nearly a year, pointing to improvements in the labour market.

British Airways (BAY.L) and Spain's Iberia (IBLA.MC) jumped 7.5 percent and 11.8 percent respectively as a merger between the two companies looked imminent as their boards held separate meetings to discuss a deal to create the world's third-largest airline by revenue.

We think the upwards trend for equity markets is fully on track. Earnings season is almost over and it was mostly positive. Macro data will now gain in importance, said Tammo Greetfeld, strategist at Unicredit Group.

But a sharp decline in commodity prices limited the market's advance. Crude oil prices slipped more than $2 to around $77 a barrel on a jump in U.S. crude stocks and a stronger dollar.

BP (BP.L), Royal Dutch Shell (RDSa.L), BG Group (BG.L), Tullow Oil (TLW.L), Total (TOTF.PA) and StatoilHydro (STL.OL) declined 0.5 to 1.8 percent.

Miners also fell, with BHP Billiton (BLT.L), Antofagasta (ANTO.L), Rio Tinto (RIO.L) and Eurasian Natural Resources (ENRC.L) falling 0.6 to 1.7 percent.

A.P. Moller-Maersk (MAERSKb.CO) fell 5.3 percent after the Danish shipping and oil group reported a deeper-than-forecast net loss for the first nine months of the year, hit by a global slump in freight. [ID:nLB221630]

But Anheuser-Busch InBev (ABI.BR), the world's top brewer, was up 1.5 percent. Its quarterly core earnings grew by slightly more than expected on the back of cost cuts and higher prices.

Europe's second-biggest carmaker PSA Peugeot Citroen (PEUP.PA) rose 0.4 percent after raising its full-year outlook on the back of an improvement in the auto market and the success of models such as the C4 Picasso.

Today's gain is very modest and the amount of stocks rising has pretty much matched those falling showing that investors are a little reluctant to push us on to new highs, said Angus Campbell, head of sales at Capital Spreads. (Additional reporting by Brian Gorman; Editing by David Cowell)