* FTSEurofirst 300 hit two-week closing low for second day
* Firmer crude lifts oil producers, but financials weak
* U.S. durable goods data weak, consumer sentiment up
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By Dominic Lau
LONDON, Sept 25 (Reuters) - European shares edged lower on Friday to hit a more than two-week closing low for a second day, led lower by weaker financials which outpaced gains in pharmaceutical and energy stocks.
The FTSEurofirst 300 of top European shares closed 0.4 percent lower at 983.91 points in a choppy session, after trading between 990.43 and 982.12 points.
The index, which tumbled 1.9 percent to a two-week closing low on Thursday, was down 2.2 percent on the week.
Banks, which have rallied 166 percent since March, were among the top losers as G20 leaders met in Pittsburgh for talks on possible tighter banking regulation.
Credit Suisse, UBS, Lloyds Banking Group, Commerzbank, Barclays and BNP Paribas were down between 0.4 and 3.4 percent.
Julius Baer shed 5.6 percent after giving disappointing targets in a strategy update and saying it would not increase dividends or buy back shares.
DnB NOR, however, soared 9.9 percent after Norway's biggest banking group announced a $2.4 billion rights issue to strengthen its capital position, with traders saying it removed some uncertainty.
New orders for long-lasting U.S. manufactured goods fell unexpectedly in August, dropping by their biggest margin in seven months, while sales of newly built U.S. single-family homes rose in August, short of expectations.
U.S. consumer sentiment, however, rose in late September to the highest since January 2008.
Leaders of the G20 pledged to keep emergency economic supports running until a durable recovery was secured.
"The most compelling reason for buying equities is because the authorities continue to operate unusual policy. We are moving in the equity world into valuations probably above the long-term average," said Jim Reid, head of European equity strategy and global fundamental credit strategy at Deutsche Bank in London.
ABOVE AVERAGE
"If they continue to put every measure, every stimulus into place, there is no reason why equities can't continue to trade above their long-term average, especially if bond yields stay very low."
Shares in European industrial engineering companies also lost ground, hit by demand concerns. Sulzer fell 3.7 percent, Alstom dropped 2.2 percent and ABB lost 2.6 percent.
Around Europe, UK's FTSE 100 index was up 0.1 percent, Germany's DAX index eased 0.4 percent and France's CAC 40 lost 0.5 percent.
Volumes on the FTSEurofirst 300 were about 104 percent of the 90-day daily average.
Heavyweight oil & gas firms lent some support to the pan-European index, as crude prices rose above $66 a barrel on heightened tension between the West and Iran over Tehran's nuclear programme.
BP, BG Group, Tullow Oil and Cairn Energy put on 0.5 to 3.2 percent. Drugmakers were in favour, with Merck KGaA up 1.1 percent after JPMorgan upgraded the stock to "neutral" from "underweight" and GlaxoSmithKline up 1.8 percent.
European healthcare regulators said its expert committee on new drugs gave the go-ahead for the first H1N1 swine flu vaccines from GlaxoSmithKline and Novartis, which added 0.4 percent.
Stock valuations are back at levels last seen in May 2006, with stocks in the FTSEurofirst 300 index trading at 13.6 times expected earnings, according to Thomson Reuters data.
The FTSEurofirst 300, which has surged 53 percent since reaching a floor last March, is up 18.3 percent in 2009, although it is still down 40 percent from a multi-year-peak reached in mid-2007.
Citigroup said in a report the stage was set for some underperforming defensive stocks to rebound after the rally in cyclicals.
"The rally over the last six months has anticipated the earnings turn. Cyclicals and financials have led. Performance then tends to broaden out into some of the defensives," it said.
"The stage appears to be set for this broadening and a return of earnings momentum as a predictor of performance." (Additional reporting by Blaise Robinson; Editing by David Holmes)