RBS, drug stocks lift European shares

                                
 By Sitaraman Shankar
                                
 LONDON, May 28 (Reuters) - European shares rose early on
Wednesday, lifted by acquisition activity around Royal Bank of
Scotland's <RBS.L> insurance unit, offsetting the impact of
declines in energy stocks that tracked the oil price.
                                
 At 0840 GMT, the FTSEurofirst 300 <.FTEU3> index of top
European shares rose 0.5 percent, steadying after it hit its
lowest level in a month on Tuesday.
                                
 RBS gained 1.7 percent on reports of strong interest for its
insurance unit, and Credit Suisse raised the stock to "neutral"
from "underperform". Italian insurer Generali <GASI.MI> rose 2.2
percent after news it had pulled out of the race for the RBS
business, however.
                                
 Drug stocks, viewed as defensive in times of market stress,
rose. GlaxoSmithKline <GSK.L> and Roche <ROG.VX> both gained
more than 1 percent.
                                
 Heavyweight oil stocks fell, tracking the price of crude,
which slipped $1.3 per barrel to distance itself further from
recent record highs.
                                
 BP <BP.L> fell 1.1 percent, Shell <RDSa.L> lost 0.7 percent
and Total <TOTF.PA> lost 0.5 percent.
                                
 "Oil will remain a bugbear for some time to come. If it
comes off, it takes some gains off the oil companies. For the
wider European market, falling oil eases inflationary pressures,
though we still have to knock a long way back from here," said
Justin Urquhart Stewart, investment director at Seven Investment
Management.
                                
 Analysts said they did not expect a recent bear market rally
to continue.
                                
 "People are way too complacent about the economy, inflation
risks and credit problems being over -- we expect the U.S. to
slow further and think earnings estimates are too high," said
Emiel van den Heilegenberg, head of asset allocation at Fortis
Investments.
                                
 "We are at the peak of a bear market rally, which does not
have much further to go. If oil comes down, which is perfectly
possible, that will be a short term support, and we could go 3-4
percent higher," he said, adding that a rally would be halted
once investors started looking at fundamentals, however.
                                
 Across Europe, Britain's FTSE <.FTSE> was up 0.2 percent,
Germany's DAX <.GDAXI> gained 0.3 percent and France's CAC
<.FCHI> rose 0.6 percent.
                                
 
                                
 GOOD APRIL, POOR MAY
                                
 With just two full trading days left in May, the
FTSEurofirst 300 <.FTEU3> has lost 1.4 percent so far this
month, suggesting that a bear market rally that helped the index
gain 6 percent in April has lost steam.
                                
 The index is up 10 percent from the year trough hit in
March, when the U.S. Federal Reserve stepped in to bail out Bear
Stearns <BSC.N>, one of the banks worst hit by a crisis in
credit markets stemming from a collapse in risky U.S. mortgages.
                                
 The credit crisis has taken 19 percent off European stocks
since July last year, when they hit a 6-1/2 year peak that
signalled the zenith of a bull run that started in 2003.
                                
 UBS <UBSN.VX>, Europe's biggest sufferer from the credit
crisis among the major banks, lost 0.7 percent after Lehman
Brothers cut its price target.
                                
 Mining stocks, which have enjoyed a stellar run despite
wobbles in the broader market, were lower on Wednesday.
                                
 Xstrata <XTA.L> fell 1.3 percent and Vedanta <VED.L> lost
2.5 percent.
                                
 (Reporting by Sitaraman Shankar; Editing by Quentin Bryar)