* FTSEurofirst 300 index closes up 0.2 percent
* Drug makers gains; banks fall
* Bayer rises on cancer pill hopes
By Joanne Frearson
LONDON, July 22 (Reuters) - European shares closed higher for the eighth straight session on Wednesday, their longest winning streak since December 2006, as gains in pharmaceutical stocks overshadowed falls in banking stocks.
The pan-European FTSEurofirst 300 index of top shares ended 0.2 percent higher at 890.05 points, the highest close since early January, after trading in a wide range of 879.97-890.38 points.
The index is up around 37 percent from its lifetime low of March 9.
"Markets have been a little undecided today showing that the rally may not be guaranteed to continue. Further highlighting the changing mood were the stocks in focus as investors went to the defensive stocks for protection," said Jimmy Yates, head of equities at CMC Markets.
Drugmakers added the most points to the index, supported by positive earnings news as U.S. peer Pfizer raised its full-year forecast for earnings, excluding items, and revenue.
Novartis, AstraZeneca and Novo Nordisk were up between 0.5 and 1.2 percent.
However, GlaxoSmithKline fell 0.6 percent after earlier gains. The company said that it had beat expectations with its second-quarter earnings and said momentum in the second half would pick up on the back of flu vaccine sales. Bayer was up 2.2 percent after the company and its development partner Onyx Pharmaceuticals said their cancer pill Nexavar showed promise in treating breast tumours in a Phase II study. Onyx Pharmaceuticals soared 24 percent.
Across Europe, the FTSE 100 index was up 0.3 percent, Germany's DAX was up 0.5 percent and France's CAC 40 was up 0.1 percent.
BANKS FALL
Banking shares took the most points off the index after Morgan Stanley reported its third consecutive quarterly loss, while Wells Fargo reported rising credit losses.
"Morgan Stanley's operating loss per share looks on the high side, compared to others in the sector. I think Morgan Stanley's paying back public aid has distorted results, it is not known if this has been incorporated into analysts expectations of the results," said Heino Ruland, strategist at Ruland Research.
Barclays and Lloyds Banking Group were down 3.1 percent and 1.6 percent respectively, as National Australia Bank which owns the Clydesdale and Yorkshire Banks reported a jump in UK bad debts.
Credit Suisse, UBS and Nordea Bank were 1.1 to 1.8 percent lower.
Insurers were also lower. Axa, Zurich Financial and Swiss Re slipped 1.2 to 1.6 percent.
Miners were in the doldrums. BHP Billiton fell 1.8 percent after the world's largest miner reported a 10 percent fall in iron ore output to 27.048 million tonnes after its operations were hit by mining fatalities and flooding in Australia.
Anglo American, Antofagasta and Eurasian Natural Resources Corporation were down between 0.9 and 1.3 percent.
On Thursday, investors await of slew or earnings news. In Europe, numbers are expected from Credit Suisse, Roche and Imperial Tobacco.
In the U.S. investors were awaiting earnings news from Microsoft, Ford Motor, American Express, Amazon.com and Bristol-Myers Squibb. (Reporting by Joanne Frearson; editing by Karen Foster)