ANTIQUES SHOPS

Egyptians must decide between Ahmed Shafik, the last prime minister of Hosni Mubarak, or Mohamed Morsy, a U.S.-educated engineer who spent time in Mubarak's jails and offers Egypt a new start as an Islamic democracy.

"We have to vote because these elections are historic," said Amr Omar, voting in Cairo, who said he was a revolutionary youth activist. "I will vote for Morsy... Even if it means electing the hypocritical Islamists, we must break the vicious cycle of Mubarak's police state."

A gunfight killed two in Cairo overnight, according to local media. The reports blamed a dispute between street vendors and there was no apparent connection to the vote, which saw little trouble on Saturday despite mutual accusations of fraud. Observers reported only minor and scattered breaches.

It was impossible to forecast who will emerge the winner by Monday - and whoever it is may face anger and accusations of foul play. Both men have widespread support, but many voters may be staying away, disillusioned by a choice of extremes after centrist candidates were knocked out in the first round last month.

Turnout at polling stations in several areas seemed lower on Saturday than during the first round. Polls re-opened at 8 a.m. on Sunday (0600 GMT).

"I am on my way to vote and I'll spoil my ballot. I'll cross out both Morsy and Shafik because neither deserve to be president," said 40-year-old shop owner Saleh Ashour in Cairo.

The military rulers who pushed out their brother officer Mubarak 16 months ago to appease the street protests of the Arab Spring have already enraged their veteran adversaries in the Brotherhood late last week by dissolving the new parliament, elected only five months ago with a sweeping Islamist majority.

A win for Shafik, 70, who says he has learned the lessons of the revolt and offers security, prosperity and religious tolerance, may prompt Islamist claims of Mubarak-style vote-rigging and street protests by the disillusioned urban youths who made Cairo's Tahrir Square their battleground last year.

"The Egyptian people have chosen freedom and are practising democracy," Morsy said as he cast his vote on Saturday. "The Egyptian people will not back down and I will lead them, God willing, towards stability and retribution."

Shafik, a former fighter pilot and air force chief whose second finish to Morsy in the first round capped a rapid ascent from rank outsider status, made little comment as he voted.

UNEVEN OUTCOMES

Should Morsy prevail, benefiting from a movement forged by decades of clandestine struggle and from support among those who put aside qualms about Islamic rule to block a return of the old regime, he may be frustrated by an uncooperative military elite, for all the generals' pledges to cede power by July 1.

The Brotherhood on Saturday again denounced the dissolution, based on a ruling by the Mubarak-era constitutional court, as "a coup against the whole democratic process" and insisted only a popular referendum could reverse the parliamentary election.

But though overturning that vote drew comparison with events that triggered the bloody Algerian civil war 20 years ago, the Brotherhood, which hung back in the early days of the 2011 revolution, has shown little appetite for a violent showdown with Egypt's U.S.-equipped army, the biggest in the Arab world.

That stalemate, coupled with a failure this year of legislators to form a consensus body to draft a new constitution and a consequent lack of clarity over the powers the new head of state will have, leaves Egyptians, Western allies and investors perplexed by the prospect of yet more of the uncertainty that has ravaged the economy and seen sporadic flare-ups in violence.

Should Shafik win, his supporters reckon, he and the ruling military council which took sovereign powers when Mubarak quit would work in harmony to restore confidence, notably for the vital and ravaged tourist trade - but questions would remain over how far the Islamists and other opponents would resist.

Casting his vote on Saturday in the New Cairo district of the capital, businessman Ashraf Rashwan, 45, said hostility to the Brotherhood among the generals, who retain power and vast business interests, meant Morsy simply could not govern.

"They'll get no cooperation from the establishment. If Morsy wins, there will be a struggle that Egyptians - me at any rate - aren't ready for," he said. "Shafik will mean smooth transition. He's learned from Mubarak's failure to listen to the people."

One mid-ranking army officer, speaking privately, said he agreed with assessments that the military council would offer far more power to a President Shafik than a President Morsy:

"There will be different treatment depending on who wins. With Shafik, a firm crackdown is sure to happen," he said, noting a decree passed last week which restored powers to the military police to arrest civilians - a measure which replaced a hated emergency law that had lapsed the previous month.

"With Morsy, the establishment itself will not back him and there will be chaos and lax security, all of which will pose challenges to him and could destroy his presidency," he added.

"DEEP STATE"

In 60 years since army officers toppled the colonial-era monarchy, Egypt's armed forces have built up massive wealth and commercial interests across industries, helped since the 1970s by a close U.S. alliance which followed the decision of the most populous Arab state to make peace with Israel.

Commonly referred to as the "deep state", it is these shadowy structures, currently overseen in public by the ad hoc Supreme Council of the Armed Forces under Field Marshal Hussein Tantawi, which many Egyptians see maintaining influence long after the promised handover to an elected civilian by July 1.

"There is no doubt that the state in all its institutions - judicial, military, interior, foreign and financial - back Shafik for president and are working to that end," said Hassan Nafaa, a politics professor who campaigned against Mubarak.

"It is very difficult to eradicate this spirit of Mubarak."

Only if liberals swallowed their qualms and voted for Morsy to prevent Shafik winning, Nafaa said, "only then may the 'deep state' back down - but I doubt this will happen."

Washington, paymaster of the Egyptian military, and the European Union, a major aid donor, both expressed alarm at the move against parliament and urged the generals to honour their pledge to stand aside. But, like neighbouring Israel, both are also uneasy at the rise of the Brotherhood and have looked on anxiously as Islamists have closed in on power in other new democracies of the Arab Spring, notably in Tunisia and Libya.

(Reporting by Edmund Blair, Yasmine Saleh, Dina Zayed, Samia; Nakhoul, Tom Perry and Tamim Elyan; Writing by Alastair Macdonald and Tom Pfeiffer; Editing by Alessandra Rizzo)

A clear majority reliant neither on opposition conservatives nor eurosceptic hard leftists, as opinion polls suggest, would be a boon as Hollande prepares legislation to raise taxes, adjust budget spending and ratify an EU fiscal discipline pact.

Yet with a simultaneous election in Greece threatening to tip Europe into chaos and French voters in no mood for further economic gloom, Hollande will have no time to bask in glory.

Opinion polls and projections from last Sunday's first-round vote suggest the Socialist bloc could achieve the 289 seats needed for a majority in the 577-member National Assembly even without adding seats from its Green Party allies.

Added to its control of the Senate and the presidency, that would give the Socialist Party more power than it has ever held and should leave Hollande's largely social democratic and pro-Europe cabinet broadly intact.

The possible entry of Marine Le Pen's far-right National Front into parliament for the first time since the mid-1980s with up to three seats would be uncomfortable but would not pose any threat to Hollande's power to govern.

"It would probably be better if the Socialists get an absolute majority because they won't be influenced by the far left and they'll be able to govern along more centrist lines," said Yves Collignon, 62, a retired engineer voting in Paris.

Hollande, who won power last month, will fly to Mexico early on Monday with voting slips barely counted for the first of a flurry of summits. His decision to side with southern nations weary of austerity has opened a rift with Europe's paymaster Germany that the Socialist needs to fix fast.

He is toning down calls for joint euro zone bonds - accepting Berlin's insistence this is a long-term prospect - and is instead pushing for a package of growth-boosting measures worth around 120 billion euros.

Hollande may face a challenge keeping eurosceptic Socialist lawmakers behind him if he agrees to Germany's demand for a commitment to deeper fiscal and political integration in Europe.

He may also encounter resistance to slowing down spending plans if a public finance audit due by end-June shows France ill placed to meet its deficit goals, as it is expected to do.

"Hollande's biggest political test will be to keep his party united if he is forced to adopt economic policies that are unpopular with the electorate," political analyst Antonio Barroso of Eurasia Group said in a note to clients.

NO VOTER HONEYMOON

Polling booths opened at 8 a.m. (02.00 a.m. EDT) and the last ones were due to close 12 hours later, with concern over turnout as voters go to the polls for the fourth time in eight weeks. The abstention rate hit a record of nearly 43 percent last Sunday.

Initial results will be released at 8 p.m., the same time the world will learn whether Greece has elected an anti-austerity party whose victory could undermine its euro zone membership and send shockwaves through financial markets.

Hollande's chief ministers, including Prime Minister Jean-Marc Ayrault, were elected in round one by scoring more than 50 percent of votes. Those in run-off contests, like Finance Minister Pierre Moscovici, are expected to win their seats.

In all, 36 deputies were elected outright last weekend and 541 constituencies are up for grabs on Sunday.

A survey by Ipsos-Logica Business Consulting published on Friday, and tallying with other polls, showed Hollande's Socialist bloc could win between 284 and 313 deputies and that the Greens could take 14 to 20 seats.

The radical Left Front coalition, whose leader Jean-Luc Melenchon was knocked out of the running for a seat representing an economically destitute northern town by Le Pen last week, is set to win just 12 to 13 seats.

Le Pen's National Front is looking at up to three seats, and the conservatives, fractured since their leader Nicolas Sarkozy was ousted as president in May, are set for 192 to 226 seats.

The projections are for a bigger parliament win for the left than in the 1997 election, when voters lashed out at the then conservative government's attempt at welfare reform, and in 1988, just after President Francois Mitterrand's re-election.

That would still leave Hollande short of the two-thirds majority he would need for any constitutional changes, such as legislation to give EU institutions more power over the budget.

Hollande faces the risk that opposition lawmakers could demand a referendum in exchange for supporting legislation that many voters would view as undermining French sovereignty.

The fact voters are already marking Hollande harshly suggests they will react angrily if he announces spending cuts.

"My hypothesis is that after the summer there will be social upheaval as people will no longer be able to voice frustration via the ballot box," political expert Dominique Reynie said.

(Additional reporting by Nicholas Vinocur; Editing by Angus MacSwan)