* European shares pause after five-day rally
* STOXX index ends flat, staying close to 13-month high
* French automaker PSA to buy GM's European operations
* Shares in UK engineer Rolls-Royce (LON: RR ) drops after record loss (Adds details, closing prices)
By Danilo Masoni
MILAN, Feb 14 (Reuters) - European shares steadied on Tuesday, as gains in the auto sector on news that PSA Group is in talks to buy General Motors' European auto operations and stronger banking stocks offset weaker consumer and pharma stocks.
The pan-European STOXX 600 .STOXX index ended flat at 370.2 points, staying near 13-month highs hit in the previous session when the index rose for its fifth session in a row.
Shares in PSA Group PEUP.PA rose 4.3 percent to an 18-month high after the French car maker said it was in talks to buy GM's European brands Opel and Vauxhall in a move that could shake up the global auto industry. the PSA-Opel deal were to go ahead it would certainly fuel additional M&A speculation," said JP Morgan analyst Jose Asumendi in a note. He mentioned as possible effects of any deal a sale by PSA of Faurecia and a fresh attempt by Fiat Chrysler to merge with General Motors (NYSE: GM ) in North America.
Banks .SX7P were also strong, up 1 percent to a one-week high as the sector was supported after Federal Reserve chair Janet Yellen struck a hawkish tone on the timing of an interest rate hike. sector was also helped by a 2.3 percent rise in Credit Suisse CSGN.S as investors cheered to a better-than-expected capital ratio at the Swiss bank.
Frozen baked goods maker Aryzta ARYN.S was the top gainer on the STOXX, surging 11.5 percent after the company's chief executive said he was stepping down, three weeks after the stock had its worst ever day after a profit warning. staples and healthcare sectors were the biggest weight to the pan-European index. Losses in food company Nestle NESN.S and drugs firm Roche resulted in the Swiss blue chip index SMI .SSMI , where they are listed, to fall by 0.4 percent.
Shares in engineering firm Rolls-Royce was another weak spot, down 4 percent, after the company announced an annual 4.6 billion pound loss, hit by a fine to settle bribery charges and by losses on its currency hedges.
Sweden's online gaming firm Kindred Group KINDsdb.ST was up 10 percent after its quarterly profit topped forecasts, while German industrial services group Bilfinger GBFG.DE rose 3.9 percent after it reinstated a dividend and beat expectations for 2016 net profit.
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