Europe recovers from volatile week

LONDON, England (Reuters) -- European stock markets ended higher on Friday, trimming their losses for the week to just over 3 percent as New York investors resisted another big sell-off and as drugmakers and selected insurers bounced.

But shares in Swedish telecoms equipment maker Ericsson and French building materials group Saint-Gobain tumbled -- the former after its credit-rating was cut by Moody's and the latter after it warned about its earnings and raised fears of possible asbestos-related litigation.

"Saint-Gobain used the dirty word 'asbestos'," said Jan Mantel, European fund manager at Barings Asset Management.

"On the profit downgrade the stock would have been down only around 10 percent but when investors hear the word asbestos they don't want to have anything to do with it."

The stock ended the session 22.5 percent lower, helping to drag the DJ Stoxx construction sector index down 5.2 percent -- far more than any other sector.

British glassmaker Pilkington sank 5.9 percent while Saint-Gobain's fellow French building group Lafarge sank 4.3 percent.

The FTSE Eurotop 300 index of pan-European blue chips ended the session 1.13 percent higher at 905.7 points.

It is down 28.5 percent for the year to date but has recouped 82 points since Wednesday, when it plumbed intraday depths not seen since the middle of 1997.

The narrower DJ Euro Stoxx 50 index was 0.86 percent higher.

In Germany, where the market trades until 1800 GMT, the DAX added 1.66 percent.

The country's second biggest bank, HVB lost about 5 percent as Moody's cut its long-term debt rating but the stock recovered later.

Moody's decision to downgrade Ericsson's long-term debt ratings to "Ba1" from "Baa3" and its short-term debt rating to"Not-Prime" from "Prime-3" ensured the company ended the day as the biggest blue-chip decliner in Europe.

Ericsson moved quickly to reassure investors the decision would not undermine its $3.25 billion rights issue but could not prevent its stock falling as much as 20 percent to its lowest level in nine years. It closed down 13.5 percent.

French peer Alcatel fell 9.4 percent and, despite a reasonable performance from technology stocks on the other side of the Atlantic, the DJ Stoxx technology index ended fractionally in the red.

Drugmakers soar

On the upside, health stocks soared.

Britain's GlaxoSmithKline jumped 5.7 percent on news the European Medicines Evaluation Agency had cleared its anti-smoking drug Zyban in a safety review.

The company issued solid results earlier this week.

Swiss drugs duo Novartis and Roche also boosted the sector index, adding over 4 percent apiece.

Some of Europe's biggest insurers found further respite after their dizzying falls earlier in the week, when their exposure to tumbling equity markets and worries over insolvency hammered the sector.

Switzerland's Zurich Financial rose 11.2 percent and France's Axa rose 10 percent.

Renault's robust first-half numbers boosted the auto sector while Europe's largest chemicals group BASF AG rallied 5.8 percent on the back of a 500 million euro buy-back programme it kicked-off on Friday.

"There has been value in the European market for a while," Barings' Mantel said.

"Markets have been cheap relative to bonds for a couple of months and after the recent falls, we're looking at levels relative to bonds which we haven't seen for 10 or 20 years."

U.S. stocks were boosted by data which showed that, while consumer sentiment fell in July, it improved in the second half of the month despite a merciless stock market sell-off.

The University of Michigan's final consumer sentiment index fell to its lowest level since November 2001 but was still better than forecast.

As most European markets closed, the Dow Jones industrial average was down 0.58 percent, the broader Standard & Poor's 500 Index was off 0.05 percent and the tech-laden Nasdaq Composite was 0.23 percent lower.

All three indices had been substantially higher than those levels earlier, suggesting Europe's markets might slip on Monday morning, when Spanish bank BSCH, Italy's Fiat and British publisher Pearson are among the big names reporting.