* FTSEurofirst 300 up 0.2 percent at 1,191.16 * Burberry rallies after 18 pct rise in Q1 sales * Tesco, Ahold, Morrison's lifted by Exane upgrade * UK banks higher after Moody's upgrade By David Brett LONDON, July 10 (Reuters) - Consumer-focused stocks led European shares higher early on Wednesday after a bullish update from Burberry and analyst upgrades for retailers such as Tesco, while weak trade data from China weighed on miners. Shares in peripheral banks fell after S&P's sovereign credit downgrade of Italy to BBB from BBB-plus, but the broader banking sector rose 0.2 percent, boosted by heavyweight UK banks such as Barclays, which gained after Moody's ratings agency lifted the British banking system outlook to "stable" from "negative" Burberry rallied 5.7 percent after the luxury goods brand maintained its full-year guidance as it posted an 18 percent rise in first quarter underlying retail revenue. UK retailers Tesco and Wm Morrison and Dutch firm Ahold rose as much as 1.7 percent after Exane BNP Paribas upgraded all three stocks. The FTSEurofirst 300 rose 2.21 points or 0.2 percent to 1191.16 points, by 0740 GMT, having closed at one-month highs in the previous session, shrugging off the S&P downgrade of Italy and China's weak trade data. "The market has confidence at the moment, thus sentiment is too positive to be upset by Italy's downgrade and China's trade data," said Basil Petrides, trader at Hartmann Capital. Last week's commitment from the Bank of England and the European Central Bank to continued economic stimulus is providing support for equities, with European shares up 3.6 percent since last Wednesday's close. Basic resources fell just 0.2 percent on China's weak trading update and "grim" outlook, with traders saying the dismal trade data had spurred talk of more economic stimulus from the world's second biggest economy. Germany's Deutsche Bank added 1.8 percent after Credit Suisse upgraded the investment bank to "outperform", while Europe's biggest bank HSBC, up 0.2 percent, remained its top pick. However, analysts warned that despite recent gains the market could still be vulnerable to a further correction. The current short interest -- where investors borrow stock to sell in order to buy back when share prices fall -- is 14 percent higher than the number seen at the start of the year, according to data from Matrix. "The big question is are we still in a bull trend or a corrective phase? We are leaning towards a corrective phase," Gerry Celaya, chief strategist at Red Tower Research, said. "We are looking at the current gains as being limited and part of a broader pull back, which should be followed by a pretty substantial drop into September and October," he said. On a three-month view Celaya said the euro zone blue chip index currently at 2,643 could fall as low as 2,060.