Earnings lift stocks, but Italy woes weigh

LONDON (Reuters) - European shares climbed sharply and Wall Street was set to join in on Tuesday as positive corporate earnings allowed stock investors to look beyond the euro zone debt crisis.

Italian bond yields eased slightly but remained close to unsustainable levels as lawmakers in Rome readied for a crucial vote on public finances.

The euro slipped against the dollar.

The FTSEurofirst 300 .FTEU3 index of top European shares was up 1.4 percent, lifted by the likes of Vodafone (VOD.L: Quote) , which edged its full-year outlook higher on growth in emerging markets.

Marks & Spencer (MKS.L: Quote), Britain's biggest clothing retailer, also rose after a fall in profit that was not as bad as some had expected.

Companies have beaten expectations, but that is against lowered expectations, Jeremy Batstone-Carr, strategist at Charles Stanley, said. There may be a good share price reaction on the day, but it tends not to last.

Corporate earnings have been one of the few bright spots for investors this year as rolling crises have destroyed appetite.

Investors on Tuesday shifted their attention from Greece -- where attempts are still underway to form a consensus government to keep the country in the euro zone -- to Italy, where Prime Minister Silvio Berlusconi is under intense pressure to resign.

Ten-year Italian bonds were yielding more than 6.6 percent, closing in on the 7 percent level that prompted Ireland and Portugal to seek bailouts.

The pan-European FTSEurofirst 300 .FTEU3 was up 0.8 percent after two sessions of losses, lifted by pleasing corporate earnings.

Companies have beaten expectations, but that is against lowered expectations, Jeremy Batstone-Carr, strategist at Charles Stanley, said, adding: One of the features of the autumn has been the extent to which the macro picture has trumped the corporate picture.

WEAKER EURO

The Swiss franc weakened as the threat of intervention hit demand for the safe-haven currency.

It extended the hefty losses sustained on Monday after the country's central bank stepped up warnings of more action to curb the currency's strength if needed. The Swiss National Bank capped the franc at 1.20 francs per euro in September and vowed to defend that level with all means necessary.

The euro rose 0.2 percent against the Swiss franc but was weaker against the dollar.

With the anxiety surrounding one of the world's biggest sovereign bond markets, the euro shed 0.1 percent to $1.3762, down from $1.3773 late in New York and well off a 2-month high of $1.4248 hit on October 27.

(Additional Reporting by Brian Gorman and William James; Editing by John Stonestreet)