UPDATE 1-Euro stocks inch higher as Italy steadies

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 outperformed after their worst day in two 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. Milan's main index rose nearly 0.4% before trimming those gains.

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 at the end of this month, the pan-euro zone stocks benchmark was up around 0.1% by 0757 GMT. A report by the Wall Street Journal on Friday said the Fed was not ready to make a 50 basis point cut, cooling any optimism among investors who have bet strongly in the past six weeks on aggressive monetary action boosting growth globally.

The broader pan-European index which includes London and other non-euro markets was 0.1% 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 and bond investors expecting at least a clear promise of action in September.

The meeting and next week's Fed statement are likely to determine whether a rebound in shares since the worst falls in more than two years in May will continue or stall. "Cautiously positive this morning," said Chris Beauchamp, an analyst at London-based trading platform IG.

"The worry in European markets is that they won't act enough this week or the next week to try to stabilize (sentiment)." Earnings continued to flow in, with Dutch health technology firm Koninklijke Philips NV up 2.7% after it topped comparable sales estimates for the second quarter.

On Wall Street, three of investors' favoured FAANG stocks - Facebook Inc, Amazon.com Inc and Google-parent Alphabet Inc - are set to report results this week with some impact on global sentiment likely. At stake, this earnings season is whether companies' earnings are poor enough to persuade the Fed and other central banks that they must take strong action this year.

Energy shares were again among the biggest gainers, tracking a rise in crude prices due to tensions in the Middle East and propping up London's commodity-heavy blue-chip index