Europe stocks rally to 4-mth high as oils ignite

By Sitaraman Shankar

LONDON, May 16 (Reuters) - European shares traded close to four-month highs by midday on Friday, bolstered by oil stocks that echoed the rally in crude prices, while British Energy (BGY.L: Quote, Profile, Research) jumped after receiving takeover bids.

At 1135 GMT, the FTSEurofirst 300 index of top European shares was up 0.93 percent at 1,372.49 points. The index has risen for three days in a row and for four out of five sessions this week.

While Friday's rally was broad based, with all 18 DJ Stoxx industrial sectors gaining, oil stocks contributed most points to the FTSEurofirst 300. BP (BP.L: Quote, Profile, Research), Total (TOTF.PA: Quote, Profile, Research) and Royal Dutch Shell (RDSa.L: Quote, Profile, Research) gained 1.6-2.2 percent as oil leapt $2 to $126.20 a barrel.

British Energy (BGY.L: Quote, Profile, Research) jumped 6.7 percent after saying it had received a range of takeover proposals including some at a premium to Thursday's closing price.

British Airways (BAY.L: Quote, Profile, Research) gained 5.8 percent after unveiling its first dividend since 2001 and posting a 45 percent rise in annual profits. German rival Lufthansa (LHAG.DE: Quote, Profile, Research) rose 3 percent.

European shares have gained 2.4 percent this week and 2.8 percent in May, after a 6 percent gain in April, a strong rebound from the slide that began last summer when global credit markets starting seizing up.

"It looks as if a recovery is setting in -- emerging markets are strong, Europe is strong and after the huge amount of worry and panic, it's not as bad as people thought it would be," said Mark Bon, a fund manager at Canada Life.

"The flight to defensives and large caps and the sell-off in emerging markets might all be overdone."