* FTSEurofirst 300 closes 0.3 pct higher
* Results of Spain's debt auction reassure investors
* Downbeat U.S. economic data limits market's gains
* BP rebounds as details of fund remove uncertainty
By Brian Gorman
LONDON, June 17 (Reuters) - European shares extended a rally to a seventh day on Thursday, as robust demand in a Spanish bond auction boosted investor confidence in the euro zone economic outlook, and BP <BP.L> rose sharply.
The market's gains were capped, however, by U.S. data that cast doubt on the strength of the economic recovery.
The FTSEurofirst 300 <
> index of top European shares rose 0.3 percent to 1,041.84 points, the highest close since May 13. The index has gained 6.3 percent in a seven-day rally, the longest winning streak in 11 months, but it is still down 0.4 percent in 2010.New U.S. claims for jobless aid rose last week while consumer prices notched their largest decline in nearly 1-1/2 years in May. A report showed factory activity in the country's Mid-Atlantic region braked to its slowest pace in 10 months in June. [
]"The inflation data is significant as it confirms the disinflationary environment, which European economies are also in," said Jeremy Batstone-Carr, strategist at Charles Stanley.
"It's significant that while equities have tried to stage something of a rebound, there's been just as much demand for treasuries as well.
"There are plenty of investors taking a pessimistic view. equities could end the year much lower."
BP <BP.L> was the standout gainer, up 6.7 percent after it agreed to set up a $20 billion damage claim fund from its Gulf of Mexico oil spill and suspended dividend payments, removing uncertainty over the dividend and size of the fund.
BP shares are still down more than 45 percent from a mid-April peak.
UK banks were among the biggest gainers, with Barclays <BARC.L>, Lloyds <LLOY.L>, and Royal Bank of Scotland <RBS.L>, up between 2.6 percent and 3.4 percent. Britain's new finance minister unveiled the biggest shake-up of the regulatory landscape in 13 years late on Wednesday, giving the Bank of England more control, scrapping the Financial Services Authority and appointing an independent committee to look at whether retail and investment banking should be split. [
]The proposals had been broadly trailed and key details on a bank levy will not come until the Budget on June 22.
Other banks to rise included Banco Santander <SAN.MC>, up 1.6 percent after its deputy chairman said most Spanish banks would pass a stress test. [
]Across Europe, the FTSE 100 <
> index ended the day 0.3 percent higher; Germany's DAX < > and France's CAC 40 < > rose 0.5 and 0.2 percent respectively.The Thomson Reuters Peripheral Eurozone Countries Index <.TRXFLDPIPU> rose 0.7 percent.
Wall Street was lower around the time European bourses were closing. The Dow Jones <
>, S&P 500 <.SPX> and Nasdaq Composite < > were down between 0.4 percent and 0.5 percent.MINERS FELL
Several miners fell, as copper prices slipped, hurt by the weak economic data. Antofagasta <ANTO.L>, Eurasian Natural Resources Corp. <ENRC.L>, Fresnillo <FRES.L>, Kazakhmys <KAZ.L> and Xstrata <XTA.L> fell between 1 percent and 2.8 percent.
Drugmakers, attractive to investors when markets are falling due to their defensive qualities, slipped.
GlaxoSmithKline <GSK.L> and Novartis <NOVN.VX> fell 0.7 percent and 1.3 percent respectively.
Earlier in the session, the benchmark index for European shares went into positive territory for 2010. Spain drew strong demand for 10- and 30-year bond issues on Thursday, selling 3.5 billion euros ($4.3 billion) at the top of its target range, although it paid a hefty premium compared with previous issues of the same paper.
The euro hit a three-week high versus the dollar.
Also helping sentiment, Germany finally backed the release of bank "stress tests", detailing the health of its lenders, dropping previous objections to the move after both France and Spain came out in favour of it.
(Editing by Elaine Hardcastle)