European shares gain 4.2 pct, led by oils, drugs

                                
 * Pan-European FTSEurofirst 300 up 4.2 pct
                                
 * Oils and pharmas rise
                                
 * U.S. housing market and consumer data downbeat
                                
 
                                
 By Brian Gorman
                                
 LONDON, Oct 17 (Reuters) - European shares gained 4.2
percent on Friday, ending a volatile week on a strong note
thanks to energy stocks which tracked a recovery in crude, while
drugmakers rose ahead of key company reports next week.
                                
 The FTSEurofirst 300 index of top European shares <.FTEU3>
ended at 894.77 points, near the day's high of 899.08 points.
                                
 The index gained 6.3 percent on the week, but has lost 40
percent this year on worries a recession will affect the
prospects of companies across the board and add to the effects
of banking failures.
                                
 Oil groups BP <BP.L>, Total <TOTF.PA> and Royal Dutch Shell
<RDSa.L> climbed around 9 percent, having suffered big declines
on Thursday. Italy's ENI <ENI.MI> rose 14.5 percent.
                                
 The sector tracked a recovery in crude prices, which rose
1.9 percent to more than $71 a barrel, amid growing expectations
of an OPEC production cut.
                                
 Across Europe, Britain's FTSE 100 <.FTSE>, Germany's DAX
<.GDAXI> and France's CAC 40 <.FCHI> posted gains of 3.4 to 5.2
percent.
                                
The rise in European shares only clawed back some of the
ground lost in the previous two days, when the leading index
fell 6.5 percent and 5 percent. But some market participants
said there were signs the worst could be over.
                                
 "What helps is that we've ended the week in the same way it
started, on an upbeat note," said Mike Lenhoff, chief strategist
at Brewin Dolphin.
                                
 "I somehow felt that although this week was marked by just
as much volatility as last week, it had a different feel. There
was encouragement from the steps the governments have been
taking (to deal with the banking crisis)," Lenhoff said.
                                
 Defensive drug stocks also rose. Roche <ROG.VX> and Novartis
<NOVN.VX>, which report sales figures and results for the
third-quarter next week, gained more than 10 percent, while UK
companies AstraZeneca and GlaxoSmithKline <GSK.L> rose 5.2 and
8.6 percent respectively.
                                
 U.S. stocks were marginally lower around the time European
bourses were closing, after a report showed housing starts slid
in September, heightening recession fears.
                                
 Construction starts on new U.S. homes fell to a 17-1/2 year
low in September as builders scaled back amid a worsening
housing slump.
                                
 Further, the Reuters/University of Michigan Surveys of
Consumers showed confidence plummeting in October, with the 
preliminary consumer sentiment index falling to 57.5 from
September's final reading of 70.3. Economists in a Reuters
survey had expected a preliminary October reading of 65.5.
                                
 The Dow Jones Industrials <.DJI>, S&P 500 <.SPX> and Nasdaq
Composite <.IXIC> indexes were down between 0.5 and 0.9 percent.
                                
 
                                
 ING TUMBLES
                                
 Europe's banking sector was mixed. Dutch financial services
group ING <ING.AS> slumped 27 percent, following a report in
Dutch business daily Het Financieele Dagblad citing analysts
saying the company was under increasing pressure to strengthen
its capital. The company declined to comment. 
                                
  France's BNP Paribas <BNPP.PA> reversed earlier losses to
close up 1.7 percent.
                                
 Insurers were mostly lower, notably Aviva <AV.L> and
Prudential <PRU.L> in the UK, off 12.7 and 9.3 percent
respectively.
                                
 Handset makers Ericsson <ERICb.ST> and Nokia <NOK1V.HE> were
strong, rising 5 and 10.6 percent respectively. Nokia had posted
a fall in third-quarter earnings on Thursday but sounded a
reassuring note about cellphone volumes for the full year.
                                
 Shares in auto group Daimler <DAIGn.DE> jumped 9.2 percent
after a source familiar with the talks said private equity group
Cerberus was in talks to buy Daimler's remaining stake in
Chrysler. Daimler declined to comment.
                                
 Miners rose, including Anglo American <AAL.L>, up 12.3
percent, and Rio Tinto, up 9.8 percent, amid a mixed picture for
metals prices.
                                
 Brewin Dolphin's Lenhoff said the market overall was subject
to two-way pull.
                                
 "We've fallen so far, the market is prepared for
disappointment. It's caught between the encouraging steps
forward by governments and the fact that there's a recession out
there, and that will limit the upside."
 (Additional reporting by Tyler Sitte; Editing by David Holmes)