PARIS (Reuters) - Pharmaceutical heavyweights knocked European shares from 2-1/2 year highs Friday after AstraZeneca and U.S. industry leader Pfizer announced setbacks for key drug hopes.

A $2 oil price spike also took the shine off the markets as worries that a cold spell in the U.S. could erode already depleted winter fuel inventories boosted energy prices.

The FTSEurofirst 300 index of pan-European blue chips fell 0.9 percent to 1,032.5, pushing away from a session peak of 1,044, a level last seen in July 2002. The benchmark index ended the week barely 0.3 percent higher than it started it.

The narrower DJ Euro Stoxx 50 index fell 1.3 percent to 2,891.5.

Around Europe, London's FTSE 100 index lost 0.8 percent, Paris's CAC 40 shed 1.7 percent, and Frankfurt's DAX fell 1.2 percent.

Health stocks were the leading decliners, with shares in Anglo-Swedish heavyweight AstraZeneca (Research) off 8.3 percent on news clinical studies had found its Iressa lung cancer drug did not help patients survive.

Roche, the maker of a drug competing with AstraZeneca's lung cancer drug Iressa, rose 1.3 percent, making the Swiss stock a rare bright spot in an equity market also hit by a jump in the price of oil.

News from Pfizer (Research) that patients taking its blockbuster painkiller drug Celebrex in a long-term cancer-prevention trial had more than twice the number of fatal and non-fatal heart attacks as those taking a placebo added to gloom in the sector.

Eli Lilly (Research) dealt a third blow to the sector, saying it was adding a warning to the label of its attention deficit/hyperactivity disorder medicine Strattera, advising patients with jaundice or a liver injury to stop taking the treatment.

Industry analysts said the slew of bad news reflected the difficulties of bringing effective new medicines to market and the increasingly tough regulatory environment in terms of proving safety and efficacy.

Among the other big decliners, Cairn Energy lost almost a fifth of its value after disappointing drilling results dented faith in the company's ability to continue its stellar run at finding oil in India.

Elsewhere, France Telecom (Research) fell 2.1 percent after saying its net debt as of January 2004 would be 57 billion ($76.31 billion) under the new IFRS international accounting standards, instead of 47.7 billion under French rules.

Traders said comments by French Industry Minister Patrick Devedjian that he was against France Telecom's request to increase the subscription fee it charges to use its network also weighed on the stock.

Devedjian also said competition in France's mobile phone industry remained insufficient, which dealers said could affect revenues at France Telecom's Orange unit and Vivendi Universal's SFR subsidiary.

Vivendi (Research) shares lost 3.5 percent as investors used Devedjian's comments as an excuse to lock in profits after six consecutive sessions of gains.

In other news, a surprise rise in German business confidence lent some support to equities earlier in the day amid hopes the improved sentiment would translate into a stronger economy. The IFO business climate index rose to its highest level since April and beat economists' forecasts.

"The key issue for the Eurozone will be whether its gradual recovery can spread into domestic demand," said economist Philip Shaw at Investec in London. "This could be particularly pertinent in 2005 as a rising euro could slow export growth."