European stocks end week higher as banks rally

* FTSEurofirst 300 .FTEU3 ends week 3.2 percent higher

* Banks lead gainers, pushed higher by Citi Q2

* Delhaize warning knock food retailers

By Patrizia Kokot

LONDON, July 18 (Reuters) - European shares ended sharply higher on Friday after better-than-expected earnings from U.S. bank Citigroup (C.N: Quote, Profile, Research, Stock Buzz) spurred a rally in financial stocks.

The FTSEurofirst 300 index .FTEU of top European shares closed 1.56 percent higher at 1,164.19 points, having fluctuated between 1,133.28 and 1,163.71 during the day.

The index gained around 3.2 percent during the week, but has lost about 23 percent so far this year.

Citigroup, the largest U.S. bank, posted a smaller-than- expected $2.5 billion loss, sending the DJStoxx European banks index 4.9 percent higher.

UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) jumped 7.6 percent and Royal Bank of Scotland (RBS.L: Quote, Profile, Research, Stock Buzz) soared 9.6 percent.

"Citigroup created a huge amount of positive excitement for the very reason that (the results) are not as bad as expected and the markets gave them the benefit of the doubt," said Howard Wheeldon, senior strategist at BGC Partners.

The oil price holding around $130 a barrel and banks gaining ground for the third consecutive trading day after a string of better-than-expected earnings raised hopes that the worst of the credit crunch may be over.

"I think we are well into the second half of this bear market but there are still plenty of shocks to come," BGC Partner's Wheeldon added.

PHARMAS GAIN GROUND ON BARR-TEVA DEAL

After banks, pharmaceuticals were prominent gainers on Friday following the announcement of a $7.5 billion acquisition of generic drugmaker Barr (BRL.N: Quote, Profile, Research, Stock Buzz) by Teva Pharmaceutical Industries (TEVA.O: Quote, Profile, Research, Stock Buzz). The deal implies a 42 percent premium to Barr's closing price on Wednesday and prompted market watchers to wonder whether pharma stocks are undervalued.   Continued...