LONDON (Reuters) - European pharmaceutical stocks, which have languished in the sick bay for months, staged their biggest daily gains in more than four-and-a-half years yesterday as some investors called a bottom to the battered sector.

AstraZeneca Plc led the charge to end 6.6 percent higher. The jump came just one day after the stock hit a fresh two-year low on worries about its weak pipeline of new drugs and stalling sales growth of existing blockbusters.

The DJ Stoxx Healthcare index topped the leaders' board across Europe with a rise of 4.2 percent, marking the largest one-day gain since March 2003, according to Reuters data.

Industry analysts said the fundamental problems facing drugmakers — including generic competition, poor productivity and mounting price pressure — had not changed but the sector's reliable cash flow was starting to look increasingly attractive to income investors.

Citigroup strategists lit the touch-paper with a note upgrading the sector to "neutral" from "underweight," arguing that European drug stocks had never been cheaper relative to other defensive plays.

"Given the fundamental risks still facing the sector this is not a structural call but we believe that there is a reasonable probability of a break in the sector's persistent underperformance," they said.

"For the first time ever, healthcare trades at a P/E discount to food and beverage, personal and household goods, and utilities. In Europe, it has never traded on a discount to any of these sectors."

Pressure on the drugs industry could also prompt further consolidation, with AstraZeneca a possible target, they added.

Dealers said the timing of the Citigroup report chimed with investors who were becoming increasingly concerned about prospects for other sectors of the economy.

Dividends paid by pharmaceutical manufacturers, in particular, look well supported compared to those from banks.

Ben Yeoh of Dresdner Kleinwort said yesterday's sharp price move had caught out investors with bearish positions.

"There's no fundamental news. Some people who were short the sector have covered those shorts and momentum players are riding that wave — valuations are relatively attractive," he said.