* FTSEurofirst flat, follwing volatile week
* Banks fall after sharp gains on Thursday, Friday
* Oil services gain after $1.43 billion deal
By Brian Gorman
LONDON, Aug 15 (Reuters) - European equities paused on Monday after a rollercoaster week, ahead of a key meeting of French and German politicians that may deliver policy initiatives that strategists say are needed to restore market equilibrium.
Oil services companies rose after a $1.43 billion acquisition in the sector while banks gave up some of their sharp gains of the previous two sessions.
At 1125 GMT, the FTSEurofirst 300 index of top European shares was up 0.02 percent at 968.44 points. The index surged 3.7 percent on Friday, helped by strong U.S. retail sales.
Trading volumes were low, with barely 20 percent of the index's 90-day average having traded just after midday, with Italy, Austria and Greece among markets remaining closed for a holiday.
The FTSEurofirst is down more than 18 percent from its 2011 peak of mid-February, having hit a two-year low last week on worries about debt crises and low growth rates in the euro zone and the United States.
France's Nicolas Sarkozy and Germany's Angela Merkel will discuss on Tuesday how to make the euro zone work more effectively amid persistent doubts in financial markets over Europe's ability to solve its sovereign debt crisis.
A German government spokesman was emphatic on Monday -- Merkel and Sarkozy will not discuss common euro zone bond issuance in Paris because Berlin does not think it is a good idea.
Strategists are split on whether the meeting would bring about a significant change.
"I fear it will not deliver what the euro zone needs, which is either organised fiscal transfers or a break-up," said Andy Lynch, fund manager at Schroders, which manages 197 billion pounds.
"I am sure we will get more muddle-through, not a long-term sustainable solution. he said the markets were "still driven by policy".
Analysts at RBS said the meeting was likely to be the "the major event of the week" as European sovereign concerns are "dominating markets."
They said the market was looking for evidence that politicians will now pursue greater economic integration, potentially laying the groundwork for some form of Eurobond.
The STOXX Europe 600 Banking Index fell 1 percent, with Barclays , down 3.4 percent as banks gave up some of last week's sharp gains from a ban on short selling in some countries.
The sector is down more than 24 percent this year.
On the upside, Aker Drilling soared 96 percent on news the world top oil drilling contractor Transocean is to pay $1.43 billion for Aker, almost double the market price.
Others in the sector to gain included PGS , up 2.1
percent, and Fugro
Lynch said he favoured the sector due to "Earth Inc. using more oil" over the coming years.
He added: "There are may companies (across many sectors) that look extremely cheap, with good cash flows. Does that mean they are going to go up on a one-week view? No, not necessarily."
He said investors should take a long-tern view, though this was not east given the fluctuations of recent days.
Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9.6 against a 10-year average of 13.3.
LOW VOLUMES
Across Europe, Britain's FTSE 100 rose 0.5 percent; Germany's DAX was up 0.9 percent and France's CAC40 rose 0.2 percent.
Data on Monday showing Japan's GDP shrank less than expected in the second quarter also improved sentiment.
"If America is not as weak as had been suggested, and we now get a bit of rebound out of Japan, then that's something to go forward," said Mike Lenhoff, chief strategist at Brewin Dolphin.
"The markets have been technically very oversold and on that basis alone, they are due for a period of remission from the selling. Although there are a lot of concerns about the way in which earnings are going to go, the results on balance have been quite good."
(Addditional reporting by Atul Prakash; Editing by David Cowell)
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