By Richard Hubbard

LONDON, March 1 (Reuters) A wave of cross-border mergers and acquisitions has raised the ire of governments around the world, threatening to politicise a process previously dominated by corporate executives, bankers and lawyers.

In Europe, the French government's decision to merge two of its largest utilities to prevent a bid from an Italian rival is challenging both the European Union's policy of promoting competition, and relations between the two countries.

''The whole M&A process is becoming very politicised now and it is becoming very protectionist,'' said Anais Faraj, a global strategist at Nomura in London.

Politicians in Italy, Poland, Spain, France and Luxembourg have indicated they are considering various ways to thwart corporate raiders as merger activity heats up across the continent.

A .8 billion bid by United Arab Emirates-based Dubai Ports for Britain's P&O, which owns key ports in the United States, has antangonised Congress in Washington with lawmakers poised to investigate the deal.

''We are really in the midst of a very strong M&A cycle but it seems to be that politicians are very easily led to intrude with the process right now and there is a lot of interference going on,'' Faraj said.

The problem is likely to be exacerbated as many of the big deals likely to emerge are in sectors that can be classed as strategic infrastructure.

Faraj highlighted airports, utilities and ports. ''All these big ticket deals are going to be seen as sensitive.'' EU officials privately are alarmed at talk of tit-for-tat restrictions on foreign takeovers within the 25-nation union but don't want to dramatise the situation in the hope it will blow over after elections or be defeated by the markets.

XENOPHOBIA VERSUS INVESTOR RETURNS The impact of the government activities on overall M&A activity and investors in target companies however is not clear cut, analysts said.

''The recent surge in protectionism will cause some people to think again,'' said one banker referring to company executives planning cross-border M&A deals.

In the Middle East, there are signs that the controversy over the Dubai Ports bid could threaten the flow of Arab investment into the United States, according to some analysts.

But in Europe the impact on investors is more mixed as government involvement in takeovers has a longer history.

The state-backed fusion of Gaz de France and Suez to create Europe's second-largest utility worth more than 70 billion euros ( billion) is latest and most high profile involvement of the French government in M&A activity.

The French government also played a decisive role in clinching drug maker Sanofi's acquisition of Aventis in 2004 by warning off Switzerland's Novartis, which had been considering a friendly ''white knight'' bid for Aventis.

''We can't show there is any impact on the companies affected,'' said Paul Gibbs, managing director of M&A Research at JP Morgan.

''We find absolutely no difference in the cost of capital between France and the UK. The UK is most open and it doesn't seem to affect valuations at all,'' he said.

In Gas de France/Suez situation, it is not clear that shareholders are being penalised. ''They are missing a prize of a higher bid, possibly,'' Gibb said.

The Gaz de France/Suez merger is the second huge merger to be proposed in Europe in the past 10 days. German utility giant E.ON made a surprise 29 billion-euro bid for Spain's Endesa last week in a deal which could end Spain's ambitions to build a national champion through the merger of Endesa with Gas Natural.

REPERCUSSIONS SEEN But the activity is beginning to have repercussions on Europe's reputation among investors, according to some analysts.

''In the U.S. and Asia, what investors are saying is 'what are these governments doing? Which way is Europe going? Why should I invest in Europe if that's the way policy goes?','' said Rolf Elgeti, head of European equity strategy, for ABN AMRO.

However, some investors have been sceptical of Europe for some time.

''It's doubtful to what degree there would be extra bad news (from the latest activities). It's not a coincidence that European share prices are among the cheapest in the world,'' he said.

REUTERS SD DS1615