Bayer buoys European shares, but Spain underperforms

* Spain's IBEX falls 0.5 pct to underperform other markets

* FTSEurofirst 300 ends up 0.2 pct at 1,348.39 points

* ESTOXX 50 rises 0.5 pct to 3,149.23 points

* Bayer (Milan: BAY.MI - news) buoys FTSEurofirst 300 and Germany's DAX

* DAX close to January's record high

By Sudip Kar-Gupta

LONDON, Feb 28 (Reuters) - Gains at major German drugmaker Bayer propped up European equities on Friday and kept key markets near multi-year highs, although weak earnings in Spain hit the Madrid bourse.

The pan-European FTSEurofirst 300 index closed up 0.2 percent at 1,348.39 points, within touching distance of its 2014 peak of 1,353.47 points, which marked its best level since May 2008.

A 3.1 percent rise at Bayer, after Bayer lifted its estimate for potential sales of new drugs, added the most points to the FTSEurofirst 300.

Bayer also helped Germany's DAX rise 1.1 percent to 9,692.08 points, putting the DAX near its January record high of 9,794.05 points. The euro zone's blue-chip Euro STOXX 50 index rose 0.5 percent to 3,149.23 points.

However, Spain's IBEX equity index underperformed to close 0.5 percent lower. Spanish builders FCC and Sacyr (Madrid: SCYR.MC - news) fell 8.5 percent and 3.9 percent respectively after each reported losses for 2013.

Although Spain and Italy have shown signs of an economic recovery from a slump caused by the 2010-2012 euro zone debt crisis, some traders still prefer Germany - Europe's biggest economy - as their favoured European stock market.

"I would look to buy Germany on dips and sell Spain and Italy on rallies," said HED Capital head Richard Edwards.

UKRAINE WORRIES LINGER

Thomson Reuters StarMine data also shows German companies have fared better than Spanish ones during the fourth-quarter earnings season. According to StarMine, 58 percent of Spanish companies have beaten or met market expectations with their earnings. In Germany, 63 percent have beaten or met forecasts.

"Corporate earnings have been mixed, but on the whole they haven't been too shabby," said Terry Torrison, managing director at Monaco-based McLaren Securities.

Hargreaves Lansdown (LSE: HL.L - news) equity analyst Keith Bowman and others said conflict in Ukraine between those who support and those who oppose Russia could put some negative pressure on European stocks. On Friday, armed men took control of two airports in the Crimea region and ousted President Viktor Yanukovich reappeared in Russia after a week on the run.

"Ukraine is a political risk. As long as the markets are convinced that Russia is not going to take a hard stance on the issue, it is something to watch but not a game-changer," said Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets.

The FTSEurofirst 300 index, which rose 16 percent in 2013, is up by around 2 percent since the start of 2014.

McLaren Securities' Torrison expected European stocks to recover from any dip caused by worries over Ukraine to rally in the second half of this year.

"We might do very little in the first quarter, but I think we should roar away in the second half."