Miners, defensive drugmakers lift European shares

                                
   * FTSEurofirst 300 up 0.3 pct
                                
 * Miners, defensive drugmakers and tobacco gain 
                                
 * Philips slumps as profit falls 
                                
 
                                
 By Harpreet Bhal 
                                
 LONDON, Jan 24 (Reuters) - European shares edged up on
Monday, as heavyweight miners rose on strong metals prices and 
defensive drugmakers and tobacco firms gained on concerns over
the impact of rising inflation on growth prospects.
                                
 Gains, however, were kept in check by falls on the German
DAX index <.GDAXI>, as sentiment was hit by data showing a drop
in German manufacturing purchasing managers index (PMI) in
January, despite strong numbers from the services sector.
[ID:nSLALCE7ND] 
                                
 The pan-European FTSEurofirst 300 <.FTEU3> index of top
shares closed 0.3 percent higher at 1,151.18 points.
                                
 "Cyclicals are being sold and investors are moving into
defensives," said Heino Ruland, strategist at Ruland Research in
Frankfurt. "It has a lot to do with worries about inflation in
China and concerns that China might overdo it with regards to
tightening, which could cause global growth to slow." 
                                
 Heavyweight mining shares rose, with the STOXX Europe 600
basic resources index <.SXPP> up 0.9 percent, boosted by strong
copper prices <CMCU3> on supply constraints.
                                
 Defensive drugmakers also gained, with the healthcare index
<.SXDP> up 1.1 percent and British American Tobacco <BATS.L> up
4 percent, as investors sought perceived safe-haven qualities in
an environment of rising inflation. 
                                
 
                                
 INFLATION LURKS 
                                
 Headline inflation in the euro zone rose to 2.2 percent in
December, the first time in two years it has risen above the
central bank's target of just below 2 percent. 
                                
 European Central Bank (ECB) President Jean-Claude-Trichet
was quoted as saying on Sunday that the core euro zone inflation
rate, excluding volatile energy and food prices, does not gauge
future price pressures well, suggesting it was taking fresh
steps towards hiking interest rates this year. [ID:nLDE70N0MV]
                                
 "There is an increasing fear that European markets will
begin to struggle from here on and that inflation cannot be
ignored," said Howard Wheeldon, senior strategist at BGC
Partners.
                                
 Further inflation expectations were fuelled by Markit Flash
Eurozone PMI data on Monday which showed factories in the euro
zone reported the strongest monthly price increase on record for
raw materials and fuel in January. [ID:nLDE70N0SH]
                                
 Among individual movers, Philips Electronics <PHG.AS> fell
5.5 percent as it posted disappointing fourth-quarter earnings.
[ID:nLDE70N051]
                                
 Britain's major banks fell after a weekend speech by the
head of the UK's Independent Commission on Banking, set up to
probe a shake-up of the sector, raises concerns the banks may
have to raise more capital to make their retail bank arms safer.
                                
 Lloyds <LLOY.L> and Royal Bank of Scotland <RBS.L> shed 3.4
and 1.9 percent respectively.
                                
 Across Europe, Britain's FTSE 100 <.FTSE> rose 0.8 percent,
Germany's DAX <.GDAXI> added 0.1 percent and France's CAC 40
<.FCHI> climbed 0.4 percent. 
 (Additional reporting by Atul Prakash; Editing by David Holmes)