European shares inch higher as Merkel hangs on to power

LONDON (Reuters) - European shares edged higher in cautious trade on Monday after German Chancellor Angela Merkel secured a fourth term but saw her party weakened by a surge in support for the far-right.

At 1027 GMT (5.27 am ET) both the pan-European STOXX 600 <.stoxx> and euro zone blue chips <.stoxx50e> were 0.1 percent higher - a more moderate reaction than the currency market where the euro took a hit.

European bourses were mixed, with France's CAC 40 <.fchi> down 0.1 percent, Germany's DAX <.gdaxi> up 0.3 percent and Milan flat.

Financials were the biggest drag on European stocks while healthcare, energy and industrials helped offset those losses.

"We had a small negative surprise", Lionel Melin, a senior cross asset strategist for Lyxor, said.

Some traders said they were worried the vote might lead to a new coalition government less keen on pushing euro zone integration.

French train maker Alstom rose 1.5 percent to its highest level since March 2013 after confirming on Friday it was in talks with German engineering group Siemens on a possible tie-up.

Switzerland's ABB rose 0.6 percent on its announcement it was buying General Electric's Industrial solutions unit in a deal worth $2.6 billion.

Shares in ABB have risen around 12 percent so far this year, in line with the broader European industrials index.

Unilever , which announced it would buy cosmetics firm Carver Korea for 2.27 billion euros ($2.71 billion), added 0.7 percent.

Unicredit slipped 0.1 percent after its deputy chairman said on Friday that the speculation about his bank wanting to take over Commerzbank was nonsense. The German bank lost 1.2 percent.

Swedish construction firm NCC was the worst performer on the STOXX, falling 7.2 percent, after it said it expected third-quarter operating earnings to come in far below market forecasts.

Politics continued to play spoilsport in Spain where Madrid's IBEX <.ibex> lagged its peers, off 0.7 percent.

The mounting political crisis over Catalonia's campaign for independence, which dragged stocks sharply lower last week, intensified over the weekend. Caixabank took the most points off the index, retreating 2.3 percent.

(Reporting by Julien Ponthus, Editing by Vikram Subhedar and Andrew Heavens)