(Reuters) - European shares were flat to marginally higher in early trading on Monday, with Italian shares recovering some ground after a bout of selling driven by political nerves as all eyes moved to this week's meeting of the European Central Bank.
Italian shares (FTMIB) outperformed after their worst day in months on Friday, as political tensions stirred speculation of a snap election which would increase uncertainty for investors but also potentially usher in a more market-friendly center-right coalition.
After ending last week marginally higher on hopes that the U.S. Federal Reserve could cut interest rates by a more aggressive half-percentage point next week, the pan-euro zone stocks benchmark (STOXXE) was up around 0.05% by 0732 GMT.
Milan's main index ground out similar gains (FTMIB) but the broader pan-European index which includes London and other non-euro markets (STOXX) was marginally lower.
The ECB meets on Thursday, with money markets pricing in a more than 50% chance of a 10 basis point cut in interest rates. Analysts say that and next week's Fed statement are likely to determine whether a rebound in shares since May will continue or stall.
Earnings continued to flow in, with Dutch health technology firm Koninklijke Philips NV (AS:PHG) up 2.7% after it topped comparable sales estimates for the second quarter.
Keeping losses in check were energy shares (SXEP) which tracked a rise in crude prices on tensions in the Middle East. [O/R]