* FTSEurofirst 300 ends up 0.8 pct
* Firmer dollar lifts auto, defence and luxury goods stocks
* Sanofi-Aventis boosts pharmaceutical stocks
By Patrizia Kokot
LONDON, Aug 8 (Reuters) - European shares ended a volatile session with
gains on Friday as a sharp drop in crude oil more than offset initial
disappointment over earnings from U.S. home lender Fannie Mae <FNM.N>.
The FTSEurofirst 300 index <> of top European shares closed 0.8
percent higher at 1,199.02 points, having swung between 1,179.92 and 1,200.56
points during the session. The index gained 3 percent this week but is still
down more than 20 percent this year.
The euro fell to five-month lows against the dollar <EUR=> after the
European Central Bank's indicated on Thursday it was in no hurry to raise euro
zone rates after having upped rates in July, citing inflation concerns.
"By raising interest rates to 4.25 percent, the central banks have dealt a
heavy blow to industry and the market is playing this now," said strategist
Andreas Huerkamp at Commerzbank in Frankfurt.
Automotive and defence stocks as well as luxury goods makers were among the
beneficiaries of the stronger dollar on Friday.
Among car makers, Daimler <DAIGn.DE> added 3.9 percent, BMW <BMWG.DE> was up
6.5 percent and Peugeot <PEUP.PA> and Renault <RENA.PA> added 4.3 and 4.6
percent respectively. The DJ Stoxx European car sector index <.SXAP> jumped 3.4
percent.
Crude oil <CLc1> hit a low of $115.61 a barrel.
Pharmaceuticals added most points to the index, with Sanofi-Aventis
<SASY.PA> rallying 4 percent on the back of news that its experimental heart
drug Multaq is to get a priority review from the U.S. Food and Drug
Administration. The drug could be worth more than $2 billion in sales annually,
according to analysts. Peers Novartis <NOVN.VX> and Roche <ROG.VX> gained 1.3
and 1.7 percent respectively.
Around Europe, Britain's FTSE 100 index <> was up 0.2
percent, Germany's DAX index <> rose 0.3 percent and France's CAC <>
added 0.8 percent.
BANKS REMAIN VOLATILE
Earnings from Royal Bank of Scotland <RBS.L> and U.S. home lender Fannie Mae
sent banking stocks on a rollercoaster ride.
UBS <UBSN.VX> was up 1.2 percent and Deustche Bank <DBKGn.DE> rose 1
percent, but Societe General <SOGN.PA> and Lloyds TSB <LLOY.L> lost 0.4 and 0.2
percent respectively.
RBS ended up 3.2 percent, after its first-half results unveiled a loss for
the first time, but still ahead of expectations.
But Fannie Mae <FNM.N>, the largest U.S. home funding company, disappointed
as the company posted its fourth consecutive quarterly loss, reigniting concern
that the worst of the housing downturn may not yet be over.
Worries that the full impact of the credit crunch on the wider economy is
yet to unravel also persist ahead of a heavy week of data.
"The economic data for the euro zone is in free fall. We have looked at it
historically and it usually indicated that earnings expectations are between 40
and 60 percent too high for the coming year," said Commerzbank's Huerkamp, who
estimated expectations need to come down by around 20 percent.
Banks swung from positive to negative territory and back throughout the session.
He added that the sharp decline in oil would help lower inflation
expectations.
The drop did however take its toll on sector heavyweights such as BP <BP.L>,
Royal Dutch Shell <RDSa.AS> and Total <TOTF.PA>, which fell between 1.5 and 2.4
percent.
(Reporting by Patrizia Kokot; reporting by Andy Bruce)
