(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 centre-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 <PHG.AS> 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.
(Reporting by Susan Mathew in Bengaluru; Editing by Patrick Graham)
