LONDON European bourses look set for a relatively stable start on Monday, although volatility is expected as markets await the United States' first strike in its "war against terrorism", and recession fears continue to dominate.

"Yes, we are going to see a reasonably steady opening after Wall Street stabilized late on Friday, but we're also going to see massive volatility later this week or even later today," said one analyst at a major European brokerage.

"The question is 'Where's the certainty coming from?'"

Pan-European benchmark indices have lost nearly 20 percent since the September 11 attacks on the World Trade Center and the Pentagon, and are languishing at three-year lows. European share prices are forecast to fall a further 10 to 15 percent before they find a floor.

"Last week -- when we saw indexes around the world swing from 300 points down to flat -- gave us clear indications of the sort of volatile pressures we will see in the week ahead as markets balance on the knife edge between fear and greed," said UBS Warburg's head of European equity strategy Ian Harnett.

**** Airlines, Insurers *****

Airline, insurance and energy sectors will continue to be worst affected, dealers and analysts said.

Aviation group Swissair will be a particular focus after it unveiled a new business plan, reduced its long-haul network and cut 3,000 jobs from its catering division amid a dramatic drop in travel in the wake of the attacks, Rueters reported.

Investors are looking to pick up stock despite the extreme uncertainty, with hard-hit insurers being a likely target. For example, analysts are recommending stocks such as reinsurers Munich Re and Swiss Re as "buys".

Both stocks have fallen sharply since the U.S. attacks, particularly after Thursday when both dramatically raised their forecasts for damage claims from the attacks. Despite massive falls for airline stocks, buying even at current low levels was only for the very brave, dealers said.

U.S. President, George Bush, signed off a bill on Saturday that gives U.S. Airlines $15 billion to share out in cash and loan guarantees, as well as state-backed insurance cover against war and terrorism risk for the next six months.

And European Union finance ministers agreed late on Friday to provide similar war risk insurance for their airlines for at least the next month, and instead proposed capping cover for liabilities to third parties on acts of war and terrorism at just $50 million.

"That helped airline stocks late on Friday and will continue to help a lot. But the fundamental problem is that airlines have limited cashflow, and business-related flying remains at a minimum," said UBS Warburg's Harnett.

"People will be looking for value among the airlines as well as among the insurers. The insurers are now oversold, looking at the quality of their assets bases and their liabilities."

*** ADVA *****

Among individual features, German Optical Network Group ADVA looked set for a grim session after it said it would cut 10 percent of its workforce as part of a range of cost-cutting measures and cut its forecast of third-quarter sales.

ADVA said it was cutting its forecast for third-quarter sales to between 21 million and 25 million euros from an earlier estimate of 27 million-29 million.

Also in Germany, and despite the current volatile environment, Deutsche Bank agreed to buy Zurich financial's U.S. fund unit Scudder in a $2.5 billion deal catapulting it into the top global ranks of asset managers.

Deutsche's long-awaited announcement made no explicit mention about the size of an expected cash component to the deal.

Zurich financial plans a news conference in Zurich at 0900 GMT to reveal further details to the deal.

Elsewhere, Monday brings a trading update from unilever. In the week ahead, first-half results from Vivendi Universal and Gucci are due on Tuesday and Swiss life first-half results on Wednesday.