European shares stay near highs as Merkel hangs on to power

* Pan-European STOXX 600 index ends up slightly

* DAX steadies but RWE (IOB: 0FUZ.IL - news) , carmakers underperform

* Gains in energy, pharma help offset weak banks

* Madrid stocks lag as Catalonia weighs (Adds details, closing prices)

By Danilo Masoni

MILAN, Sept 25 (Reuters) - European shares rose slightly 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.

Investors said the likelihood of a coalition government in Europe's biggest economy dampened hopes of stronger political integration but the economic outlook remained strong.

"European stocks are set to do well in the coming 3-6 months especially if the euro pulls back against the dollar," said Andrea Cuturi, chief investment officer at Anthilia Capital. "All in all the reaction of the market is very disciplined"

The pan-European STOXX index rose 0.2 percent to its highest level in around 9 weeks, while Germany's DAX index ended flat, just below a 10-week high hit on Friday.

Merkel began the tough task of trying to build a government on Monday urging the centre-left Social Democrats not the shut the door on a re-run of their "grand coalition".

Cuturi said even though he expected Merkel to form the so-called "Jamaica coalition" with the Free Democrats and the Greens, likely slowing European integration, he remained overweight on European stocks due to their attractive relative valuations.

European shares have been hurt this summer by worries that a rapid surge in the euro could eat into profits of export oriented companies but some investors believe the sell-off had created fresh buying opportunities.

"We are pretty constructive on European stock markets, we see pockets of value in a lot of places," said William Hamlyn, senior investment analyst at Manulife Asset Management.

"I think there is value in some of the more economically sensitive names, we like... consumers, some financials, the big oil and the miners," Hamlyn added.

The oil sector, the worst performer in Europe so far this year, rose 0.8 percent, helped by a rally in crude oil prices and further buoyed by an upgrade to Overweight at Citi.

Among top DAX gainers on Monday were Merck KGAA (LSE: 0O14.L - news) , Bayer (IOB: 0P6S.IL - news) and Deutsche Telekom (IOB: 0MPH.IL - news) but some car makers and utility RWE fell on expectations of environmentally friendly policies under a new government with the Greens.

The German vote results didn't appear to dampen investor enthusiasm about a possible cross-border merger between France's Alstom (LSE: 0J2R.L - news) and Siemens (BSE: SIEMENS.BO - news) , which ended up 1.3 and 0.1 percent respectively. Alstom on Friday confirmed it was in tie-up talks with the German engineering group.

But Commerzbank lost 1.8 percent in a weak banking sector after UniCredit (EUREX: DE000A163206.EX - news) , down 1.4 percent, said that talk about a takeover of the German bank was nonsense.

Still on the M&A front, Switzerland's ABB (LSE: 0NX2.L - news) ended flat after agreeing to buy General Electric (Euronext: GNE.NX - news) 's Industrial solutions unit for $2.6 billion, while consumer giant Unilever (Amsterdam: UZ8.AS - news) inched up 0.1 percent after a 2.3-billion-euro deal to buy cosmetics firm Carver Korea.

Swedish construction firm NCC (BSE: NCC6.BO - news) fell 8.8 percent, after warning that third-quarter operating earnings would come in far below market forecasts.

Among other regional benchmarks, Madrid's IBEX lagged its peers, down 0.9 percent as the political crisis over Catalonia's campaign for independence intensified.

Banco Santander Caixabank and BBVA (LSE: 931474.L - news) took the most points off the index, retreating between 1.1 and 3.8 percent. (Reporting by Danilo Masoni; Additional reporting by Julien Ponthus in London Editing by Jeremy Gaunt)