: : Tolkien's elves where probably inspired by the Light Elves and Dark Elves of Norse Mythology. Katharine Briggs in her Encyclopedia of Fairies mentions the following concerning Tolkien's sources:

: : 'The folklore used was in the main Scandinavian in tone. The DRAGONS*, the GNOMES, the GOBLINS, the ELVES fit into the world of Scandanavian mythology. It was not of supreme importance what type of folklore was used so long as it was authentic and came
: : like native air to the mind of the writer.'

: : *Capitals are given by Briggs in the original

: You don't provide a full context, but I can assure you that Tolkien's use of Celtic folklore in THE HOBBIT is well attested, and he based a number of themes on Greek and Biblical ideas as well.

I left the remainder out because it had nothing to do with the subject in question. Ms. Briggs was basically giving him an honorable mention (a rarity indeed) among such great folklorists as J. F. Campbell, J. G. Campbell, Lady Gregory, John Aubrey, James Phillipps, Edward Hartland, Lady Wilde, etc.

The full quote is as follows:

'Tolkien, J. R. R. (1892-1973) - A new dimension in fairy fiction arose in our literature when the trilogy of The Lord of the Rings followed Tolkien's The Hobbit. These books were felt at once by a surprising number of people to have something significant to say about our modern problems and to hold an implicit message for young people all over the English-speaking world. Every detail was felt to be of interest. People used the elven script and learnt the elven tongue. One got the feeling that the whole of life was embraced in this archaic-seeming tale. It was about danger and endurance against heavy odds, about companionship and simple pleasures of food and song, about landscapes, about the dreadful weight of a corrupting responsibility, the dangers of science and the terrible presence of an evil will. There was no explicit preaching, but the will was braced by reading. The whole was not decorated but deepened by the use of traditional folklore which gave it that sense of being rooted in the earth which is the gift of folklore to literature.

'The folklore used was in the main Scandinavian in tone. The DRAGONS, the GNOMES, the GOBLINS, the ELVES fit into the world of Scandanavian mythology. It was not of supreme importance what type of folklore was used so long as it was authentic and came
like native air to the mind of the writer.'

Tolkien had knowledge of a wide variety of folklore, and many themes can be seen in his works. Personally, I feel the Elves (at least the Noldor), physically had much more in common with the Tuatha da Danann and the Fians than with the Light Elves of Norse Mythology. They are bold and powerful, strong and warlike - willing to fight for their place in the world against the forces of darkness (such as the Fir Bholg and Fomorians). However, as time passed these great heroes began to diminish, until by the early Middle Ages they had become the diminuitive fairies which Shakespeare was so fond of casting in his plays.

I believe it was this association of 'fairies' with the 'little people' of English and (inherited) Celtic folklore which caused Tolkien to think of them as childish and unfit models for the elder Children of Iluvatar. In particular, his dropping of the name Gnome in favor of Noldo is revealing of his attitude toward his elves. The name Gnome had long ago lost its connotation with the Greek idea of 'wisdom' (thanks to the Medieval alchemists) and become associated in stead with little men in funny hats living in the ground.