Europe shares rise, extending rally to 5th day

                                
 * FTSEurofirst 300 <.FTEU3> index up 0.6 percent
                                
 * Oils gain as crude prices reach six-month highs
                                
 * Pharmas, banks rise
                                
 By Brian Gorman
                                
 LONDON, May 20 (Reuters) - European shares rose in early
trade on Wednesday, on course for a fifth day of gains, with
energy companies up on crude prices rising above $60 a barrel.
                                
 At 0827 GMT, the FTSEurofirst 300 <.FTEU3> index of top
European shares was up 0.6 percent at 875.26 points.
                                
 The index, which hit its highest close in more than four
months on Tuesday, is up more than 35 percent from its lifetime
low of March 9, as investors have become more confident about
the prospects for economic recovery.
                                
 Oil companies were the standout gainers after crude prices
<CLc1> rose to a six-month high of more than $60 a barrel, after
data showed a big draw on U.S. inventories.
                                
 ENI <ENI.MI>, BP <BP.L> and Royal Dutch Shell <RDSa.L> were
up between 1.3 and 1.4 percent.
  "The underlying picture is still strong. Risk appetite is
growing," said Bernard McAlinden, investment strategist at NCB
Stockbrokers, in Dublin.
                                
 Wall Street's fear gauge, the Chicago Board Options Exchange
Volatility index <.VIX> fell below the key 30 level for the
first time in eight months on Tuesday, and on Wednesday,
Germany's VDAX-NEW volatility index <.V1XI> traded at its lowest
since September last year.
                                
 Pharmaceutical companies gained, on the prospect of renewed
deal activity.
                                
 Novartis AG <NOVN.VX> was up 0.5 percent after saying it was
buying the injectable generic cancer drugs business of Austrian
EBEWE Pharma for 925 million euros ($1.3 billion) in cash to
boost its copy-cat medicine unit Sandoz. [ID:nLK720637]
                                
 GlaxoSmithKline <GSK.L>, Shire <SHP.L>, AstraZeneca <AZN.L>,
Merck <MRCG.DE> and Sanofi-Aventis <SASY.PA> rose between 1.7
and 2 percent.
                                
 Several banks rose, building on recent gains. Deutsche Bank
<DBKGn.DE>,  Societe Generale <SOGN.PA> and UBS <UBSN.VX><UBS.N>
were up between 2.7 and 3.4 percent.
                                
 NOKIA RISES ON UPGRADE
                                
 Index heavyweight Nokia <NOK1V.HE> rose 1.7 percent after
Deutsche Bank raised its recommendation on the mobile phone
maker to "buy" from "hold".
                                
 On Wall Street, The Dow Jones <.DJI> and S&P 500 <.SPX>
ended slightly lower on Tuesday after housing starts fell to a
record low.
                                
 Bank of America <BAC.N> completed a $13.5 billion equity
raising, following other recent issues by Wells Fargo <WFC.N>
and Morgan Stanley <MS.N>.
                                
 "There's temporary indigestion as banks raise money, but
there's plenty of money on the sidelines," said NCB's McAlinden.
                                
 After the closing bell, Hewlett-Packard Co <HPQ.N> gave a
disappointing outlook for full-year revenue and said it will lay
off another 2 percent of its workforce as consumers and
businesses cut spending on computers, printers and services,
sending its shares down about 5 percent. [ID:nN19414562]
                                
 Japan's economy shrank a record 4.0 percent in the first
quarter as domestic demand and investment buckled, threatening
to crush any export-led rebound later this year.[ID:nT367411]
                                
 Across Europe, Britain's FTSE 100 <.FTSE> was up 0.1
percent; Germany's DAX <.GDAXI> and France's CAC-40 <.FCHI> were
up 1 and 0.6 percent respectively.
 (Reporting by Brian Gorman; Editing by Rupert Winchester)