(Adds UK GDP, Wall Street open, updates prices)
* Deutsche, Credit Suisse settle US mortgage securities probes
* Italy approves Monte dei Paschi bail-out
* Dollar off slightly but hovers near recent peaks
* UK Q3 GDP ahead of estimates, cushions sterling
By Vikram Subhedar
LONDON, Dec 23 (Reuters) - European stocks edged higher on Friday, helped by banks after two regional bellwethers settled investigations into U.S. mortgage securities, while oil and the dollar were on the back foot in light trading ahead of the Christmas break.
In another boost to European financials, a bailout for Italy's oldest bank Monte dei Paschi was approved as the country's government looks to end a protracted banking crisis that has gummed up the economy. on Wall Street ESc1 pointed to a flat open.
European shares .STOXX were up 0.1 percent with euro zone banks .SX7E up 0.6 percent and comfortably outperforming broader markets. An index of Italian lenders .FTIT8300 rose by 1.6 percent.
While Monte dei Paschi shares were suspended from trading, Italian government bond yields fell with 10-year yields slipping 4 basis points to 1.81 percent IT10YT=TWEB .
"Banks run the show today," analysts at Kepler Chevreux said in a note to clients, adding that the newsflow around Italian lenders was turning positive.
Deutsche Bank's $7.2 billion settlement with the U.S. Department of Justice (DOJ) over toxic mortgage securities sold in the run-up to the 2008 financial crisis was nearly half of the fine initially levied in September. Deutsche Banks shares rose 2.7 percent and are up 86 percent since September lows.
Credit Suisse CSGN.S fell 0.6 percent, giving up earlier gains, after it agreed to pay $5.3 billion to the DOJ to settle similar charges. Barclays (LON:BARC) became the latest in a long-list of other lenders under investigation to be sued. markets were quiet, with UK markets closing at midday.
The dollar headed into the Christmas break on Friday just over half a percent off highs hit after this month's U.S. Federal Reserve policy meeting.
The dollar is up more than 7 percent against a basket of currencies since lows hit on U.S. election night in November but has been flat for the past week.
The dollar index .DXY , hovering near a 14-year high, was marginally lower at 103.03 but remained within striking distance of the week's 103.65 peak.
"My overall sense is that we'll start the year eking out further gains from the post-Trump trends, before we get a change of tack," said Societe Generale (PA:SOGN) strategist Kit Juckes.
The euro was also a shade firmer at $1.0440 EUR= , having rebounded only modestly from a nearly 14-year low of $1.0350 set earlier in the week.
Sterling GBP= headed for its biggest weekly fall in almost three months on Friday, although data showing that the British economy grew faster than expected in the third quarter helped lift it from a seven-week trough against the dollar.
The UK economy expanded at a 0.6 percent pace in the three months to September, faster than the original estimate of 0.5 percent, suggesting there has been no "Brexit" hit to economic activity so far since the June 23 vote to leave the European Union. prices slipped, eroding some of the gains in the previous session as traders took profits. O/R
Brent crude for February delivery LCOc1 dropped 36 cents, or 0.7 percent, to $54.69 a barrel after ending 1.1 percent higher on Thursday. U.S. West Texas Intermediate crude CLc1 fell 39 cents, or 0.7 percent, to $52.56 a barrel after gaining 0.9 percent in the previous session.