* FTSEurofirst 300 retreats from 11-month highs
* Commods slip, Lloyds Banking Group reverses losses
* Defensive pharmaceuticals advance
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By Dominic Lau
LONDON, Sept 18 (Reuters) - European shares pulled back on Friday, from an 11-month high reached the previous session, as commodity stocks fell, but Lloyds Banking Group reversed earlier losses on a Goldman Sachs note.
Defensive drug makers, which have lagged the rally, emerged as the day's top gainers.
The FTSEurofirst 300 of top European shares closed 0.5 percent lower at 1,006.50 points, snapping a three-day winning run but was still up 1.3 percent for the week. The index breached the 1,000 mark on Wednesday for the first time since October 2008.
Heavyweight commodity stocks eased as investors pocketed gains after recent hefty rises. Oil and gas producers BP, Royal Dutch Shell, BG Group and StatoilHydro were down 0.2-1.1 percent.
Among miners, BHP Billiton, Xstrata, Anglo American, Antofagasta and Kazakhmys dropped 0.9-2.5 percent. But Lloyds Banking Group erased earlier losses to trade up 0.9 percent after a bullish Goldman note on the UK bank's plan to quit the British government insurance scheme.
"A downsizing of the GAPS (government asset protection scheme) or a rights issue to pay for (parts of) the fee would be attractive alternatives to our base case scenario of full participation," Goldman said.
Goldman also raised its profit outlook and price targets on shares of several European banks, citing lower peak provision estimates and stronger net interest income and trading.
HSBC, Banco Santander, UBS, Credit Agricole, Commerzbank and Natixis rose 0.8-3 percent.
"There is still no indication that the market wants to come down. We are not generating enough noise or investment debate to suggest that the market is tired," said Geoff Wilkinson, head of investment research at Mint in London.
"There is some strong suspicion that some of the move we have seen recently is driven by people who need to buy this market rather than want to," he said.
The index has rallied 56 percent since hitting a floor in March and is up 18.3 percent this quarter, on track to post its best quarterly rise in almost a decade. But it is still down 13.4 percent from its level in mid-September 2008, before the bankruptcy of Lehman Brothers.
Across Europe, Britain's FTSE 100 gained 0.2 percent on Friday, Germany's DAX lost 0.5 percent and France's CAC 40 eased 0.2 percent.
RISK INDICATOR LOW
The VDAX-NEW volatility index, a gauge of investor risk appetite, hit a two-month low, down 3.7 percent, as a steady flow of recovering macroeconomic data around the world has fuelled investor appetite for risky assets such as equities. The lower the volatility index, the higher investors' appetite for risky assets such as equities.
Drug makers AstraZeneca, GlaxoSmithKline, Roche Holding, Sanofi-Aventis and Shire rose 0.1-2 percent.
Food and consumer goods group Unilever gained 1.7 percent, boosted by a price target hike by HSBC.
Some investors said a rotation into defensive stocks from outperforming cyclical issues may provide fresh impetus to the market.
"A lot of the rest of the market -- the big telcos, the big staple stocks, the big pharma stocks -- have completely missed the rally, so if there was some rotation or profit taking...to the defensives or high yielding part of the market, you can actually see the market going higher," said Neil Dwane, European chief investment officer at Allianz's RCM.
Among other individual movers, Volkswagen ordinary shares shed 6.7 percent after Deutsche Boerse, the Frankfurt stock market operator, announced new weightings for stock in Europe's largest automaker, meaning asset managers whose funds track the index would have to adjust their holdings of the shares.
British Airways lost 1.8 percent after two people with direct knowledge said it would team up with American Airlines and Qantas Airwasys to expand their alliance with cash-strapped Japan Airlines to beat off a rival offer from another airline. (Editing by Simon Jessop)