Sinking euro keeps Europe stock rally alive

* FTSEurofirst 300 ends up 0.3 pct, posts 6th weekly gain in row

* Strong negative correlation between euro, European stocks

* Shares (Berlin: DI6.BE - news) in Eni (NYSE: E - news) drop 5.6 pct after dividend cut, capex slashed

By Blaise Robinson

PARIS, March 13 (Reuters) - European stocks pared losses in late trade on Friday and ended higher, keeping their strong rally alive as investors bet that a renewed drop in the euro would boost the region's economy and lift exporter earnings.

The euro has tumbled 3 percent this week against the dollar, hitting 12-year lows below $1.05 on Friday, as the European Central Bank began asset purchases that will eventually help pump a trillion euros into the economy.

The relentless slide in the euro over the past year has given a significant lift to European corporate results after years of stagnating profits. The drop in the single currency is seen translating into a 10 to 13 percent lift in earnings in 2015.

"European stocks are driven by the forex market, big time," said Nicolas Cheron, market analyst at FXCM (NYSE: FXCM - news) in Paris.

"The drop in the euro has played a major role in the stock rally in Europe in the past few months even before quantitative easing was launched, and now, with short positions on the euro reaching extreme levels in the short term, European stocks look vulnerable to a pull-back if the currency bounces."

The FTSEurofirst 300 index of top European shares ended the session up 0.3 percent at 1,578.82 points. It posted a weekly gain of 0.5 percent, the benchmark's sixth in a row.

Germany's DAX - which is up 21 percent so far this year and trading at record highs - gained 0.9 percent on Friday after a late session rally. The German index rose 3 percent on the week, posting its ninth consecutive weekly gain, the longest winning streak in 17 years for the benchmark.

"So much of the positives on the European market is in the price," Paul Chesterton, a senior trader at Peregrine & Black, said. "I can't help feeling it's looking a bit stretched here."

European stocks have strongly outperformed Wall Street so far in 2015, helped by the European Central Bank's bond-buying programme that has been driving the euro lower and prompted global investors to increase their exposure to European stocks.

According to Bank of America Merrill Lynch Global Research, European equity funds have enjoyed $36 billion in inflows so far this year. U.S. equity funds have seen redemptions of $47 billion over the same period.

Elsewhere in Europe on Friday, France's CAC 40 rose 0.5 percent, closing above the 5,000 mark for the first time since mid-2008, while Britain's FTSE 100 index fell 0.3 percent, dragged by a retreat in energy and mining shares, falling along with commodity prices.

Italy's MIB retreated 0.4 percent, hurt by a 4.6 percent drop in the shares of Eni after the Italian energy major cut its dividend, slashed investments and suspended its share buyback programme.

Spain's Sabadell slid 2.2 percent, retreating for a second day. A source told Reuters the bank was considering a 1.5-billion-euro capital increase via a share issue to fund a bid for Britain's TSB, which was announced on Thursday.

Commerzbank (Xetra: CBK100 - news) surged 4.9 percent, with traders citing relief that a U.S. fine announced the previous day was in line with market expectations.

Europe bourses in 2015: http://link.reuters.com/pap87v

Asset performance in 2015: http://link.reuters.com/gap87v

Today's European research round-up (Editing by Mark Heinrich)