European shares pull back but oil rally limits losses

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* STOXX 600 down 0.4 pct

* Oil index biggest sectoral gainer

* Lonza leads pharma stocks lower

* Italy outperforms as banks surge

By Danilo Masoni

MILAN, Dec (Shanghai: 600875.SS - news) 12 (Reuters) - European shares fell on Monday after a rally last week, as weaker drug makers more than offset gains by oil stocks to near 17-month highs.

Shares (Berlin: DI6.BE - news) in Swiss pharmaceutical company Lonza fell 6.9 percent after it said it was in advanced talks to buy U.S. drugs capsule maker Capsugel. Sources earlier told Reuters the deal could be worth more than $5 billion.

Baader Bank (Xetra: 508810 - news) analyst Laura Lopez Pineda said the deal made strategic sense, but worries about a potential capital increase to finance it may weigh on the shares.

Lonza's decline was the biggest in Europe and helped to drag Europe's STOXX Healthcare index down 1 percent.

Among top losers was precious metal miner Polymetal . It fell 4.6 percent as gold prices were dragged down by expectations that a possible U.S. rate hike this week would curb demand for the safe-haven asset.

The STOXX Europe 600 fell 0.4 percent after hitting its highest level in around 11 months in the previous session. The index remains down more than 3 percent so far this year.

But losses in the broader market were limited by a rally in crude oil. Crude prices climbed to their highest since mid-2015 after the Organisation of Petroleum Exporting Countries and non-OPEC producers reached their first deal since 2001 to jointly reduce output.

"Make no mistake about it - this historic agreement is a game changer," FOREX.com analyst Fawad Razaqzada said. "Although the crude oil rally has already started at the end of last month when the OPEC first announced the deal, I think there is plenty of fuel left in this rally."

The STOXX Oil & Gas index surged more than 2 percent to its highest level since July 2015. Oil stocks such as Tullow Oil, Petrofac (Amsterdam: PF6.AS - news) and Eni (LSE: 0N9S.L - news) were among the top STOXX gainers, rising 3.5 to 9.4 percent.

Italy's FTSE MIB rose 1.1 percent, outperforming the rest of Europe thanks to gains among its banks and after Foreign Minister Paolo Gentiloni was tasked to form a new government.

Monte dei Paschi (Milan: BMPS.MI - news) rose more than 7 percent. The ailing bank said it was pressing ahead with a plan to raise 5 billion euros on the market this year, despite political uncertainty.

UniCredit (EUREX: DE000A163206.EX - news) , the country's biggest bank, rose 3.5 percent after a deal to sell asset manager Pioneer to France's Amundi (Berlin: 350155.BE - news) for 3.5 billion euros. Amundi shares rose over 4 percent to a record high. (Reporting by Danilo Masoni, editing by Larry King)