* FTSEurofirst 300 rises 0.2 percent
* Miners add to gains
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By Brian Gorman
LONDON, Oct 7 (Reuters) - European shares edged higher in early trade on Wednesday, building on a major gain in the previous session, with miners among the biggest risers. At 0838 GMT, the FTSEurofirst 300 index of top European shares was up 0.2 percent at 995.15 points.
Miners extended gains from Tuesday, as gold prices held near record levels, above $1,000 an ounce, and copper also remained relatively strong.
Anglo American, BHP Billiton, Rio Tinto and Xstrata rose between 0.6 and 1 percent. On Tuesday, the European benchmark rose 2.2 percent, its biggest one-day percentage gain in nearly two months, and is up more than 55 percent from its lifetime low of March 9, as investors have become more confident on the prospects of economic recovery.
Some analysts advised caution, arguing that much of the recent surge in equities had been due to rises for commodity shares, which had been fuelled by dollar weakness.
"Commodity demand isn't rising. Commodity prices are fooling us, because you have the cloak of the dollar over them. Take off the cloak and commodities will look weak," said Justin Urquhart Stewart, director at Seven Investment Management. "It's fool's gold. Growth will continue to be weak."
"But every time there's a dip, there are certain mangers sitting on cash, desperate to get in. We could be in a trading range."
The insurance sector was higher, benefitting from the rise in equity markets worldwide. Aviva, AXA, Prudential rose between 1 and 1.1 percent.
Energy companies were among the biggest fallers, after crude pared gains late on Tuesday, though it is still above $71 a barrel.
Total, BP and Royal Dutch Shell fell between 0.4 and 0.8 percent.
Across Europe, Britain's FTSE 100, Germany's DAX and France's CAC-40 rose between 0.1 and 0.2 percent.
SAINSBURY FALLS
British supermarket group J Sainsbury fell 3.3 percent after meeting forecasts with a slight slowdown in quarterly sales growth and saying that industry growth would moderate further as food price inflation eases.
Water groups Pennon and Severn Trent rose 2.3 and 2.2 percent respectively after they were upgraded by HSBC to "overweight" and "neutral" respectively.
Kingfisher rose 3.5 percent. UBS upgraded its recommendation on Europe's largest home improvement retailer to "buy" from "neutral" and Morgan Stanley upped its stance to "equal-weight" from "underweight".
Later, investors' attention will turn to the United States, where Alcoa is due to kick off third-quarter earnings season.
"In the third-quarter earnings, companies' top lines will look weak, and the bottom line will look good," said Urquhart Stewart. "That means they are cutting costs, peeling the bark back. If you keep doing that, you kill the tree." (Editing by Rupert Winchester)