UPDATE 2-European stocks end quiet trading session barely up

* Spanish stocks, mostly banks, underperform
* All eyes on ECB, Fed interest rate meetings
* Energy stocks rally on rising oil prices

(Updates to close)
By Sruthi Shankar and Medha Singh
July 22 (Reuters) - European shares ended flat on Monday as
a summer lull hit trading volumes at the start of a pivotal week
that will see the European Central Bank meet over monetary
policy and a deluge of corporate earnings reports.
The pan-European STOXX 600 index .STOXX closed up just
0.07%, with just 151.5 million shares changing hands at the
close versus its thirty-day average of 1.8 billion.
However, an index of euro zone stocks .STOXXE closed 0.22%
higher as Italian shares .FTMIB recovered some ground after
political uncertainty drove their worst day in two months on
Friday. Investors are gearing up for a showdown between Italy's
coalition partners this week that could raise uncertainty about
the future of the government. "Equity markets have fallen slightly in the past few days,
more so in Italy than others, but in most cases they are still
close to record highs. They are not particularly well-positioned
for a negative event," said Simona Gambarini, a markets
economist at Capital Economics in London.
Investors are focussed on the ECB meet 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 to counter slowing
growth.
That meeting and next week's U.S. Federal Reserve' 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. The main STOXX index hit a session high in afternoon trading
following a South China Morning Post report that U.S. trade
negotiators could visit China next week for their first
face-to-face talks with Chinese officials since the G20 meeting
last month. Trade-exposed sectors such as technology .SX8P and
automakers .SXAP rose, with chipmakers Infineon Technologies
IFXGn.DE , Siltronic WAFGn.DE and Dialog Semiconductor
DLGS.DE gaining between 2.3% and 4.2%.
Spanish banks were a weak spot ahead of earnings from the
euro zone's biggest bank by market value, Banco Santander
SAN.MC , on Tuesday. The broader banks index .SX7P was down
0.3%.
Spain's acting Prime Minister Pedro Sanchez signalled on
Monday that his Socialist party was close to forming a
government with far-left Podemos, which would pave the way for
him to be sworn in by parliament. The first confirmation vote is scheduled for around 1800
(1600 GMT) on Tuesday, almost three months after an inconclusive
national election left the Socialists as the biggest party but
short of a majority.
"His alliance with Podemos to form a very leftist
government, probably concern a lot of investors, particularly if
they're close to market-sensitive ministries such as treasury,
finance, labour, housing, etc," a trader in Spain said.
The biggest gainer on the STOXX index was Dutch health
technology firm Koninklijke Philips NV PHG.AS , up 5.7%, after
reporting better-than-expected quarterly sales
growth. Energy shares .SXEP were again among the top gainers,
tracking a rise in crude prices due to tensions in the Middle
East and propping up London's commodity-heavy blue chip index
.FTSE O/R .L
Shares of British fashion retailer TED.L surged 13% to the
top of London's FTSE 250 midcap index .FTMC after reports its
founder and former chief executive Ray Kelvin would support a
private equity buyout months after he quit over allegations of
misconduct.