Europe shares edge higher; banks up, pharmas fall

* FTSEurofirst 300 edges up, on track for 8th day of gains

* Banks gain; EU to publish stress test in July

* Sanofi-Avents leads pharmas lower on diabetes drug fears

* 'Quadruple witching' expiries for futures and options

* For up-to-the minute market news, click on [STXNEWS/EU] By Brian Gorman

LONDON, June 18 (Reuters) - European shares edged higher at midday on Friday, as stronger banks helped offset drugmakers led lower by Sanofi-Aventis (SASY.PA) after an Italian study revived fears about its diabetes drug.

A "quadruple witching" expiration of June stocks and index futures and options increased trading volatility.

At 1126 GMT, the pan-European FTSEurofirst 300 .FTEU3 index of top shares was 0.3 percent higher at 1,044.81 points, on track to extend a rally into eight sessions, its longest winning streak in 11 months.

The FTSEurofirst 300 added 6.3 percent in the previous seven sessions but is still down 0.1 percent for 2010, having suffered in April and May when fears of a debt contagion in the euro zone gripped investors.

"There has been a slight change in sentiment," said Mike Lenhoff, chief strategist at Brewin Dolphin Securities, in London, speaking about the rally.

"It looks like the policy effort is beginning to come to fruition. Apart from the financial stability programme, I quite like the idea of the stress test for the banks. Markets have been oversold, giving a buying opportunity."

Banks were among the biggest gainers, with Societe Generale (SOGN.PA), BBVA (BBVA.MC) and Credit Agricole (CAGR.PA) up 1.4-2.7 percent.

In a move watched closely by financial markets, European leaders agreed on Thursday to publish details of stress tests showing the financial health of individual banks next month and to toughen budget rules to restore confidence in their currency union. [ID:nLDE65G0TA]

Spanish bank Santander (SAN.MC), meanwhile, confirmed it had made an offer for around 300 British branches of Royal Bank of Scotland (RBS.L). Santander was up 1.3 percent, while RBS gained 0.3 percent.

On the downside, French drugmaker Sanofi-Aventis (SASY.PA) fell 4.1 percent as a small Italian study rekindled fears about a possible link between its Lantus diabetes drug and cancer. [ID:nLDE65H0UX]

Elsewhere in the sector, Roche (ROG.VX) fell 3 percent after a promising new diabetes drug it has been developing under license from French group Ipsen (IPN.PA) faced a delay of at least 12-18 months after hypersensitivity problems were seen in some patients. [ID:nLDE65H05H]

Other drugmakers to fall included GlaxoSmithKline (GSK.L), Shire (SHP.L) and AstraZeneca (AZN.L), down between 0.9 percent and 3 percent.

News of problems for its rivals boosted Novo Nordisk (NOVOb.CO), the world's biggest diabetes drug producer, which rose 4.7 percent. [ID:nDKT005014]

BP GAINS

A relief rally in BP (BP.L) gathered pace with the stock up 3.2 percent, adding to the previous session's gains, after its chief executive, Tony Hayward, weathered a grilling by U.S. lawmakers over the Gulf of Mexico oil spill.

BP shares were still down more than 40 percent from a mid-April peak and it faces further pressure from U.S. politicians after the biggest oil spill in the country's history. Across Europe, Britain's FTSE 100 .FTSE was flat; Germany's DAX .GDAXI and France's CAC 40 .FCHI fell 0.2 and 0.4 percent respectively.

The Thomson Reuters Peripheral Eurozone Countries Index .TRXFLDPIPU rose 0.2 percent. (Editing by Dan Lalor)