Sunday's German election will set the tone for European shares this week with a win for Angela Merkel's Christian Democrats widely seen as the best for stocks but a grand coalition feared.
The Federal Reserve's interest rate decision on Tuesday is the week's other key event, with hopes receding of a pause in monetary tightening despite Hurricane Katrina's impact on the economy.
Corporate interest will be on ABN AMRO's deal to buy Pop Italiana's shares to take over Antonveneta while major firms set to report include Pernod Ricard, Gaz de France and ENI.
ABN, the Netherlands' largest bank, is poised to seal the first foreign take-over of a major Italian bank but stumbling blocks remain.
Sources told Reuters that authorities - market watchdog Consob and the Bank of Italy - will formally authorise the deal in time for the shares to be released this week.
Pop Italiana's shares in Antonveneta and those of its allies have been impounded as part of a judicial probe into possible financial crimes linked to Antonveneta share-dealing.
In other company news, the deadline for Sweden's Skandia to give its response to Old Mutual's bid is on Friday while Vodafone holds its annual investor day on Monday, hosted by the group chief executive and various regional chiefs.
Spain's Inditex, owner of retail chain Zara, is seen posting a mean 18 percent rise in first-half net profit on Wednesday as investors seek confirmation it has recovered from an earlier fashion error.
Europe's blue-chip FTSEurofirst 300 index remains around 40-month highs but has bobbed up and down this week as volatile energy stocks reacted to fluctuations in the oil price and as underperformance in Germany's DAX index weighed.
The DAX lagged on fears a government formed from Merkel's CDU and Chancellor Gerhard Schroeder's Social Democrats (SPD) would be unable to deliver many of the labour market and tax reforms needed to boost growth in Europe's largest economy.
"It is clear that the German election outcome has become much less clear, with the SPD regaining votes in recent polls, and putting the left-alliance roughly in line with the CDU-led right-wing alliance," said CSFB analyst Harald Hendrikse.
With German unemployment hovering near post-war highs, such an event may prove negative in the near term, particularly for Germany's large auto industry, but shares may recover quickly.
"We believe this would pose a real threat to the short-term share performance of the German auto restructuring stories, which could then present a buying opportunity," Hendrikse added.
Other coalition permutations are viewed as positive by economists and analysts but with Merkel's lead in the polls narrowing, the result looks in doubt right up to the vote counting.
The devastation caused by Hurricane Katrina led some in the market to conclude the Fed could put rates on hold after lifting at each of its meetings since June 2004.
But comments from Fed officials have hinted the key rate will rise again this week on inflation concerns caused by strong gains in energy prices. Nevertheless many in the market can see the light at the end of the tunnel.
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