European stocks close up 0.6 pct; banks rise, commods fall

* FTSEurofirst 300 index up 0.6 pct

* Banks reverse earlier losses

* Commodities fall

By Joanne Frearson

LONDON, June 18 (Reuters) - European shares closed higher on Thursday supported by the U.S. Philadelphia Federal survey which came in better than expected, while banking stocks reversed earlier losses to add the most points to the index.

The pan-European FTSEurofirst 300 <.FTEU3> index of top shares closed up 0.6 percent at 850.62 points after hitting its day's high 852.78 points earlier, snapping a four day losing streak, although the index is down about 3.9 percent for the week.

"The Philly Fed is quite important as confidence indicators go and is another positive signal. Contractions are at a slower pace and that is important," said Howard Wheeldon, strategist at BGC Partners.

"European markets keep following the U.S. markets, but I think we are in for a very rude awakening. I think there is a necessary correction waiting to be had, but clearly we are not having it today," he said.

The Philadelphia Federal Reserve Bank said manufacturing in the U.S. Mid-Atlantic area contracted in June for the ninth consecutive month but much less severely than expected and far less than in the previous month. [ID:nN18266955]

Also adding to the positive sentiment, was news the number of U.S. workers filing new claims for jobless benefits rose last week but the number of people staying on the benefit rolls after collecting an initial week of aid fell for the first time since January, a government report showed. [ID:nN18383787]

The banking sector reversed earlier losses to become the highest movers on the index. ING was up about 8 percent after Goldman Sachs upgraded the group to "buy" from "neutral".

Credit Suisse and UBS gained 5.2 percent and 3.6 percent respectively. The Swiss National Bank said it will keep its drastic measures to fight recession and calls for rules to split off parts of its dominant banks and limit their size if needed to protect the economy. [ID:nLG607451]

COMMODITIES FALL

Miners were lower as copper

Rio Tinto , Kazakhmys , Rangold Resources and Lonmin were down 0.6-4.9 percent.

Energy stocks were in the doldrums as crude hovered around $71 a barrel. BG Group , BP , Royal Dutch Shell and Galp are down 0.7-1.2 percent.

Among individual stock movers, shares in fertiliser and salt maker K+S fell 2.2 percent after several analysts cut their target price on the stock after the company's revenue and earnings warning on Wednesday.

HeidelbergCement jumped 17.4 percent after the German cement maker secured a 8.7 million euro loan restructuring plan from its banks, giving it until the end of 2011 to sell assets and cut costs to overhaul its strained finances.

In other economic news, investors shrugged off news that British retail sales fell unexpectedly in May as shoppers tightened their belts after splashing out over Easter, while government borrowing hit a record high, official data showed. [ID:nLI363722]

"Retail sales numbers for May came in lower than analysts had expected, throwing doubt on any near-term economic recovery. Those 'green shoots' aren't looking so green now," said Manoj Ladwa, senior trader at ETX Capital in London.

Across Europe, the FTSE 100 <.FTSE> index was up 0.1 percent, Germany's DAX <.GDAXI> was up 0.8 percent and France's CAC 40 <.FCHI> was 1 percent higher.

(additional reporting by Harpreet Bhal; editing by Elaine Hardcastle)