ANTIQUES SHOPS

By Caroline Valetkevitch and Edward Krudy

NEW YORK, June 17 (Reuters) - Early results from Greece's elections on Sunday showed pro-bailout parties are on course to win a slim majority, which may give markets some respite, bu t any coalition's majority looks set to be nar row and may lack the stability needed to push through painful reforms.

Whatever the outcome, Europe's problems are far from over as the debt crisis threatens to further engulf the larger economies of Spain and Italy.

Any sign of stresses in markets on Monday morning and investors will be looking for action from the world's central banks who, according to officials, stand ready to intervene if trading becomes turbulent.

At stake in Greece's election, as investors see it, may be the country's future in the euro zone and possibly the future of the currency bloc itself.

The Greek conservative New Democracy party and Socialist PASOK, who broadly back an EU/IMF bailout package keeping Greece from bankruptcy, looked set to jointly secure a slim majority in parliament. SYRIZA, the leading leftist party that pledged to tear up the terms of the bailout package, conceded defeat.

"Most probably they will try to form coalitions and the real question is, with the horse trading how stable is it?" said Doug Roberts, chief investment strategist at Channel Capital Research.com in Shrewsbury, New Jersey. "But right now it's more like kicking the can down the road. Either way you're not talking about a stable situation."

An official vote projection showed New Democracy taking 29.5 percent of the vote, with SYRIZA in second place with 27.1 percent and PASOK third with 12.3 percent.

Because of a 50-seat bonus given to the party that comes in first, the result translates into 128 seats for New Democracy and 33 seats for PASOK in the 300-seat parliament.

Roberts said whether or not central banks intervene will depend on markets next week. "If the markets start heading south I think they will be forced to," he said.

In one of the few markets trading shortly after the official election projections in Greece, the euro hit a three-week high against the U.S. dollar in early Australasian trade, rising to around $1.2730 according to Reuters data from around $1.2655 late in New York on Friday.

But markets have had a tendency to react positively to political developments late Sunday and early Monday only to quickly reverse. That was the case last weekend after the EU announced a 100 billion euro bailout for Spanish banks.

Weeks of worry over the potential outcome of the Greek election have prompted a number of central banks to prepare for market problems.

Central banks from major economies are ready to take steps to calm markets should the outcome of the Greek elections create a market storm, officials from the Group of 20 told Reuters.

Among them, European Central Bank President Mario Draghi said the ECB was ready to step in and fund any viable euro zone bank that gets in trouble. The Bank of England on Thursday announced a $155 billion (100 billion pound) offer of loans to banks.

Group of 20 leaders kick off a two-day summit in Mexico on Monday and the rest of the week is not likely to be any quieter.

The Federal Reserve is due to release a policy statement on Wednesday at the end of its two-day meeting, and the steady flow of sovereign debt warnings and downgrades is likely to continue.

In another sign of investor nervousness, the CBOE Volatility index, Wall Street's fear gauge, was up for much of Friday even as stocks rose, although the VIX closed lower. Stocks and the VIX typically have an inverse relationship.

Many investors have been trying to prepare for the worst.

"People have been hedging their positions aggressively over the past two weeks heading into this weekend," said Alec Levine, a derivatives strategist at Newedge Group SA in New York.

"No matter what happens (this) week, we will return to a massive game of chicken between the newly elected Greek government, whoever that may be, and the EU, specifically Germany."

THE FED AHEAD

Despite the fears, stocks ended the week on a positive note, marking a second straight week of gains. The benchmark Standard & Poor's index is now up 6.8 percent for 2012, though still well off its highest levels of the year.

Part of what has spurred optimism for stock investors in recent weeks has been the hope that the Fed and other central banks would act to provide more economic stimulus. There has been continuing speculation over whether the Fed will engage in a third round of quantitative easing.

"We do think that expectations of QE3 will drive the market one way or the other," said Omar Aguilar, chief investment officer for equities at Charles Schwab Corp, in San Francisco.

But the fact that the Fed has made no recent changes to policy could mean the economic data policymakers are seeing is "not as bad as everyone thinks," Aguilar said.

Also ahead of the vote, Russell Indexes said certain events in Greece could mean changes in its indexes through implementation of its "financial crisis" rule. Its indexes include the Russell Global Index.

ON RATINGS WATCH

Adding to investor nervousness has been a slew of recent ratings cuts.

Among the most recent, Fitch Ratings on Friday downgraded Egypt's sovereign credit rating deeper into junk status. On Thursday, Egan-Jones cut France's sovereign credit rating.

Many investors see that trend continuing as agencies try to gauge the impact of the euro zone and other problems on the global economy.

"We're probably going to see more of it," Peterson said. (Additional reporting by Doris Frankel; Editing by Maureen Bavdek and Chizu Nomiyama)

A decree from the ruling military council, published as the count got under way on Sunday, spelled out only limited powers for the new head of state and reclaimed for itself the lawmaking prerogatives held by the Islamist-led parliament which the Supreme Council of the Armed Forces (SCAF) dissolved last week.

Liberal and Islamist opponents denounced a "military coup".

The Muslim Brotherhood, vowing to reject the moves, said that Mohamed Morsy, its candidate for the presidency, led former general Ahmed Shafik, Mubarak's last prime minister, by 54 percent, with votes in from 90 percent of polling stations.

A Brotherhood official said Shafik had 46 percent of the votes counted, the official added. Shafik's campaign has not given a clear indication of where their candidate lies.

Brotherhood party member Osama Yassin said at the headquarters where officials were ebullient watching the numbers come in: "They are an initial indication showing Dr Morsy winning the election."

The council's "constitutional declaration", issued under powers it took for itself after pushing aside Mubarak to appease street protests 16 months ago, was a blow to democracy, said many who aired their grievances on social media, a favored weapon in the Arab Spring that ended Mubarak's 30-year rule.

"Grave setback for democracy and revolution," tweeted former U.N. diplomat and Nobel peace laureate Mohamed ElBaradei.

"SCAF retains legislative power, strips president of any authority over army and solidifies its control," he said.

"The 'unconstitutional declaration' continues an outright military coup," tweeted Abdel Moneim Abol Fotouh, a moderate Islamist knocked out in the first round of the presidential election last month. "We have a duty to confront it."

A Facebook page whose young activists helped launch the uprising mocked the army's order, noting Egypt would have a head of state with no control over his own armed forces: "It means the president is elected but has no power," one comment read.

DEADLINE

The order from Field Marshal Hussein Tantawi, the chairman to the Supreme Council, indicated that the army, which also controls swathes of Egypt's economy, has no intention of handing substantial power now to its old adversary the Brotherhood.

"SCAF will carry legislative responsibilities ... until a new parliament is elected," the council's order said.

It raised a question of how, even if a civilian head of state is sworn in this week, Tantawi can claim to have met his own deadline of July 1 for relinquishing control - a deadline the armed forces' major patron and paymaster the United States had stressed in recent days it was expecting him to respect.

Washington and Egypt's European allies, also major providers of aid to the most populous Arab state, had voiced concern when Tantawi, backed by a judicial ruling from a court appointed under Mubarak, dissolved the parliament elected in January in which the Brotherhood and hardline Islamists had a big majority.

However, the Western powers - and many of Egypt's 82 million people - are also uneasy about the rise of Islamists in Cairo, as in other new democracies of the Arab Spring, notably Tunisia and Libya, and so are unlikely to sanction the generals for now.

The failure of the new parliament to agree a consensus body to draft a constitution - liberals accuse the Islamists of packing the panel with religious zealots - has left Egyptians picking their way from revolution to democracy through a legal maze while the generals control the map and change it at will.

Under the latest order, writing of the new constitution may pass to a body appointed by the SCAF - if a court rules against the contested panel nominated by the now defunct legislature.

Any new constitution would need approval in a referendum, with a new parliamentary election following. By a timetable contained in the decree, it would take another five months or so to complete the planned "transition to democracy".

However, the experience of the past year has left many Egyptians doubting that the military, and what they call the "deep state" stretching across big business, Mubarak-era judges, security officials and the army, will ever hand over control.

"SCAF isn't going to transfer any real power," Marc Lynch, a Middle East expert at George Washington University said on Twitter of the constitutional order. "Back to the beginning."

AWKWARD CHOICES

Turnout, only 46 percent in the first round, appeared to have been no higher for the run-off held over two days.

Many voters were dismayed by an unpalatable choice between a man seen as an heir to Mubarak and the nominee of a religious party committed to reversing liberal social traditions.

Some cast a ballot against both men in protest.

"I'll cross out both Morsy and Shafik because neither deserve to be president," said Saleh Ashour, 40, a shopkeeper in the middle-class Cairo neighborhood of Dokki as he went to vote. "I want to make a statement by crossing out the two names.

"Just staying away is too passive."

Shafik, 70, said he had heeded the lessons of the revolution and offered security and prosperity for all Egyptians. Morsy, 60, tried to widen his appeal beyond the Brotherhood's committed and disciplined base by pledging to preserve a pluralist democracy and finally end a history of military rule.

In the second city, Alexandria, computer engineer Sameh Youssef, 30, was wary of Islamist rule but wanted to honor the dead of an uprising launched by frustrated young urbanites: "I will vote Morsy," he said. "Not because I like him but because I hate Shafik. Between us and Shafik there is blood."

In Old Cairo, however, 56-year-old physician Khalil Nagih echoed the sentiments of many, including Christians like himself, whose mistrust of the Brotherhood and desire for an end to a year of chaos outweighed anxiety about the army's role:

"I chose Shafik because he has experience of administration and was an officer. He is a straight talker and he speaks to all communities. He says he'll solve our problems and I believe him. Morsy will bring a religious state and take Egypt backwards."

The Brotherhood has contested the army's power to dissolve parliament and warned of "dangerous days". But though some have compared events to those in Algeria 20 years, which ended in civil war between the military and Islamists, many doubt that the Brotherhood has an appetite for such violence at present.

Monitors said they had seen only minor and scattered breaches of election rules but not the kind of systematic fraud that tainted elections under Mubarak, despite mutual accusations of irregularities by the rival camps.

A win for Shafik may prompt street protests by the Islamists and some of the disillusioned urban youths who made Cairo's Tahrir Square their battleground last year. Should Morsy prevail, he is set to be frustrated by an uncooperative army.

(Additional reporting by Dina Zayed, Tom Pfeiffer, Edmund Blair, Alastair Macdonald and Samia Nakhoul in Cairo and Abdel Rahman Youssef in Alexandria; Writing by Alastair Macdonald; Editing by Samia Nakhoul)