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Oil, Drug Stocks Push Euro Market Higher

European stocks ended flat on Monday, pausing after last week's sharp losses as rising oil prices lent support to energy shares but banking stocks were hit by worries over the health of the sector.

Pharmaceutical stocks climbed, led by Shire's gains on an upbeat broker note.

The FTSEurofirst 300 index of top European shares closed 0.03 percent higher at 1,222.89 points.

The index slipped 3.5 percent last week on concerns over the outlook for banks, high oil prices and the specter of interest rate hikes.

Banks featured among the top losers on Monday, with UBS down 4.4 percent and Credit Agricole down 4.5 percent.

Deutsche Postbank tumbled 6.2 percent as traders said the lender, a takeover target, may not fetch an attractive deal in the face of growing interest in rival Dresdner.

HBOS shed 4.3 percent on fears that a big chunk of the lender's shares will not be taken up during the fundraising and will be sold in the market.

Adding to the gloom, Goldman Sachs cut its recommendation on U.S. financial shares to "underweight." "We have reached support levels," said Francois Chevallier, strategist at VP Finance in Paris.

"Investors have overreacted. Stock prices are unrealistically low after last week's sell-off sparked in part by anticipation of interest rate hikes," he said. "But macro news out of Europe is not good and signals a strong slowdown that could force the ECB to postpone any rate hikes."

High inflation has prompted the European Central Bank to adopt an increasingly hawkish tone over the past few weeks, raising the prospect of a rate hike as soon as July.

The Federal Reserve is expected to keep U.S. interest rates steady at 2 percent when it announces its decision on Wednesday.

UK's FTSE-100 index added 0.8 percent, bolstered by gains in energy stocks, as oil prices moved above $137 a barrel again.

Royal Dutch Shell added 1.5 percent and BP gained 1.8 percent, while France's Total rose 2.1 percent.

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