European shares inched higher on Monday with trading light due to British markets being shut and gains expected to be limited as worries about the euro zone debt crisis remained.

Traders said worries about debt raising in Italy, which is at the centre of the region's crisis, in the first part of the year would likely to cap gains going into the New Year.

Italy needs to raise 450 billion euros in debt markets in 2012 and with ten-year Italian yields above 7 percent - a level considered unsustainable - investors are unlikely to pile back into the market in a hurry.

It is very low volume, and I think it is going to be a pretty tough year ahead, Mark Priest, senior trader at ETX Capital, said.

We have had nothing but doom and gloom. Italy has a whole tranche of debt to repay and that could have a significant knock-on effect for Europe if they do not do well.

Spain could be dragged back into the centre of the euro zone debt crisis after its new government said on Friday that this year's budget deficit would be much larger than expected and announced a slew of surprise tax hikes and wage freezes.

Utility stocks featured amongst the top performers, with E.ON and RWE rising 1.5 percent and 1.2 percent respectively as investors stuck to companies which are considered safe havens in economically tough times.

By 0916 GMT, the pan-European FTSEurofirst 300 <.FTEU3> index of top shares was up 0.3 percent at 1,004.34 points after recording their biggest annual drop since 2008 on Friday for the last day of the trading year.

Traders also said with major markets such as Britain being closed for a bank holiday and volumes light, movements were likely to be exaggerated throughout the day.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Asset returns in 2011: http://r.reuters.com/suz52s

Sector performance in 2011: http://link.reuters.com/wuv75s

Debt crisis in graphics: http://r.reuters.com/hyb65p

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Economic data also showed a grim picture of the euro zone's ability to weather the region's debt crisis, with the region's manufacturing activity declining for a fifth consecutive month in December, although at a slightly slower rate than November.

Sunday marked the 10th anniversary of the introduction of euro notes and coins and policymakers urged governments in the region to follow a tough savings course in 2012 to overcome the debt crisis.

(Reporting by Joanne Frearson; Editing by Mike Nesbit)

United kingdom