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* L'Oreal shares shine after sales beat expectations

* Royal Unibrew, Sodexo gain on hiking forecasts

* Germany slightly raises FY GDP forecast, source says

* STOXX down 0.7% on the day and 1.7% for the week

April 19 (Reuters) - European stocks dropped to their lowest levels in more than one month on Friday after a ramp-up in the Middle East conflict spooked investors, while L'Oreal's shares rose as the French cosmetic giant's quarterly sales trounced estimates.

The continent-wide STOXX 600 was down 0.7%, as of 0837 GMT with most sectors in the red.

Indexes across major European economies such as Germany , France, Italy and Spain dropped between 0.7% and 1.2%.

The benchmark index is on track for its biggest weekly drop, of 1.7%, since last October as a mixed bag of corporate earnings and geopolitical jitters marred appetite for risky assets.

The escalating tensions between Israel and Iran also fuelled concerns that a spike in commodity prices could rekindle inflation and delay the European Central Bank's highly anticipated interest rate cut in June.

Offsetting the glum mood, shares in L'Oreal rose 4.8% after the beauty company posted a near 10% rise in first-quarter sales on a like-for-like basis.

Sodexo rose 2.3% after the food caterer said it expects organic revenue growth this year to be at the top of its 6%-8% forecast and also posted half-year sales broadly in line with estimates.

Still, as markets gear up for the full volley of corporate reports in the weeks to follow, first-quarter earnings are expected to have decreased 12.1% year-on-year, LSEG data showed on Tuesday.

"We're going to see some stability and turnaround this earnings season but it might take a quarter or two before you actually see the impact of interest rates in the numbers," said Gene Salerno, chief investment officer at SG Kleinwort Hambros.

"If you're taking that over the horizon view, then I wouldn't be particularly concerned about the earnings numbers you're seeing this quarter."

Still, analysts have a positive outlook for equities, with the ECB expected to kick off its monetary easing cycle in June.

On the economic data front, Reuters reported that the German government will raise its annual growth forecast, while also expecting inflation to soften faster than expected.

Among others, Schneider Electric said it is in talks with U.S. engineering software producer Bentley Systems over a potential "strategic transaction". However, the French company's shares lost 2.1%.

Royal Unibrew surged 14.3%, the most on the STOXX index, after the Danish brewer raised its full-year outlook.

Later in the day, investors will keep an eye out for S&P Global's credit rating reviews of Italy, Netherlands and Greece. (Reporting by Johann M Cherian in Bengaluru and Ozan Ergenay in Gdansk; Editing by Sherry Jacob-Phillips)