March 17 (Reuters) - European shares extended a rebound on Friday as supportive measures in the United States and Europe calmed fears about a looming global banking crisis, but the index was set to post a second straight weekly drop.
The pan-European STOXX 600 (.STOXX) rose 0.7% by 0915 GMT, lifted by a sharp recovery in oil and gas stocks (.SXEP).
Banks (.SX7P) gained 1.1% following a $30 billion lifeline by large U.S. banks for embattled lender First Republic Bank (FRC.N).
The rescue package came less than a day after battered Swiss bank Credit Suisse (CSGN.S) clinched an emergency central bank loan of up to $54 billion to shore up its liquidity.
Shares of Credit Suisse reversed early gains and were down 5.8%. They had jumped 19% on Thursday.
"The moves by the U.S. big banks to step in and help out First Republic is also being seen as a move to calm investor nerves, really to stop the dominoes from falling," said Danni Hewson, head of financial analysis at AJ Bell.
"But, there are still a lot of questions... Investors are really concerned about how this change away from cheap money to higher interest rates is impacting the financial sector because it's clear there are cracks."
Lender-heavy indexes of Spain (.IBEX) and Italy (.FTMIB) advanced 0.9% and 1.2%, respectively, but were still on track for sharp weekly losses.
Energy stocks (.SXEP) advanced 2.6% as crude prices rebounded after a meeting between Saudi Arabia and Russia calmed markets, and were supported by strong China demand expectations.
The STOXX 600 index ended Thursday 1.2% higher after some back and forth as the lifeline to Credit Suisse offset concerns around the European Central Bank's big 50-basis point (bp) interest rate hike.
The ECB's decision reflects the central bank's priority to fight inflation and also signals strong confidence in the solidity of European banks, said French ECB policymaker Francois Villeroy de Galhau.
Meanwhile, Goldman Sachs lowered its estimate for an interest rate hike by the ECB in May to 25 bps.
Focus now shifts to the U.S. Federal Reserve's two-day meeting next week against the backdrop of the global banking turmoil, with traders now expecting an 83% likelihood of a smaller 25 bps hike in the world's largest economy.
Among other movers, Sanofi SA (SASY.PA) edged 0.3% up on saying it will cut U.S. list prices for its most-prescribed insulin product, Lantus, by 78% starting next year. This followed similar moves by rivals Novo Nordisk (NOVOb.CO) and Eli Lilly and Co (LLY.N).
