European shares knocked from 11-month highs

                                
 * FTSEurofirst 300 retreats from 11-month highs
                                
 * Commods slip, Lloyds Banking Group reverses losses
                                
 * Defensive pharmaceuticals advance
                                
 * For up-to-the-minute market news, click on [STXNEWS/EU]
                                
 
                                
 By Dominic Lau
                                
 LONDON, Sept 18 (Reuters) - European shares pulled back on
Friday, from an 11-month high reached the previous session, as
commodity stocks fell, but Lloyds Banking Group <LLOY.L>
reversed earlier losses on a Goldman Sachs note.
                                
 Defensive drug makers, which have lagged the rally, emerged
as the day's top gainers.
                                
 The FTSEurofirst 300 <.FTEU3> of top European shares closed
0.5 percent lower at 1,006.50 points, snapping a three-day
winning run but was still up 1.3 percent for the week. The index
breached the 1,000 mark on Wednesday for the first time since
October 2008.
                                
 Heavyweight commodity stocks eased as investors pocketed
gains after recent hefty rises. Oil and gas producers BP <BP.L>,
Royal Dutch Shell <RDSa.AS>, BG Group <BG.L> and StatoilHydro
<STL.OL> were down 0.2-1.1 percent.
                                
 Among miners, BHP Billiton <BLT.L>, Xstrata <XTA.L>, Anglo
American <AAL.L>, Antofagasta <ANTO.L> and Kazakhmys <KAZ.L>
dropped 0.9-2.5 percent.
But Lloyds Banking Group erased earlier losses to trade up
0.9 percent after a bullish Goldman note on the UK bank's plan
to quit the British government insurance scheme. [ID:nLI109343]
                                
 "A downsizing of the GAPS (government asset protection
scheme) or a rights issue to pay for (parts of) the fee would be
attractive alternatives to our base case scenario of full
participation," Goldman said.
                                
 Goldman also raised its profit outlook and price targets on
shares of several European banks, citing lower peak provision
estimates and stronger net interest income and trading.
                                
 HSBC <HSBA.L>, Banco Santander <SAN.MC>, UBS <UBSN.VX>,
Credit Agricole <CAGR.PA>, Commerzbank <CBKG.DE> and Natixis
<CNAT.PA> rose 0.8-3 percent.
                                
 "There is still no indication that the market wants to come
down. We are not generating enough noise or investment debate to
suggest that the market is tired," said Geoff Wilkinson, head of
investment research at Mint in London.
                                
 "There is some strong suspicion that some of the move we
have seen recently is driven by people who need to buy this
market rather than want to," he said.
                                
 The index has rallied 56 percent since hitting a floor in
March and is up 18.3 percent this quarter, on track to post its
best quarterly rise in almost a decade. But it is still down
13.4 percent from its level in mid-September 2008, before the
bankruptcy of Lehman Brothers.
                                
 Across Europe, Britain's FTSE 100 <.FTSE> gained 0.2 percent
on Friday, Germany's DAX <.GDAXI> lost 0.5 percent and France's
CAC 40 <.FCHI> eased 0.2 percent.
                                
 RISK INDICATOR LOW
                                
 The VDAX-NEW volatility index <.V1XI>, a gauge of investor
risk appetite, hit a two-month low, down 3.7 percent, as a
steady flow of recovering macroeconomic data around the world
has fuelled investor appetite for risky assets such as equities.
The lower the volatility index, the higher investors' appetite
for risky assets such as equities.
                                
 Drug makers AstraZeneca <AZN.L>, GlaxoSmithKline <GSK.L>,
Roche Holding <ROG.VX>, Sanofi-Aventis <SASY.PA> and Shire
<SHP.L> rose 0.1-2 percent.
                                
 Food and consumer goods group Unilever <UNc.AS> gained 1.7
percent, boosted by a price target hike by HSBC.
                                
 Some investors said a rotation into defensive stocks from
outperforming cyclical issues may provide fresh impetus to the
market.
                                
 "A lot of the rest of the market -- the big telcos, the big
staple stocks, the big pharma stocks -- have completely missed
the rally, so if there was some rotation or profit taking...to
the defensives or high yielding part of the market, you can
actually see the market going higher," said Neil Dwane, European
chief investment officer at Allianz's RCM.
                                
 Among other individual movers, Volkswagen <VOWG.DE> ordinary
shares shed 6.7 percent after Deutsche Boerse, the Frankfurt
stock market operator, announced new weightings for stock in
Europe's largest automaker, meaning asset managers whose funds
track the index would have to adjust their holdings of the
shares.
                                
 British Airways <BAY.L> lost 1.8 percent after two people
with direct knowledge said it would team up with American
Airlines and Qantas Airwasys <QAN.AX> to expand their alliance
with cash-strapped Japan Airlines <9205.T> to beat off a rival
offer from another airline.
 (Editing by Simon Jessop)