BRUSSELS (Reuters) - Islamophobia and anti-Semitism fueled by the Sept. 11 attacks and the Middle East conflict are in danger of becoming acceptable in Europe, the European Union's racism watchdog warned Tuesday.

Presenting its report on racism in the EU, the European Monitoring Center on Racism and Xenophobia (EUMC) called on leaders of the 15-nation bloc to deal with the underlying social and economic factors it said were
fueling racial prejudice.

"Now it seems legitimate to have anti-Muslim and anti-Semitic views on some issues because people have mixed up the whole issue," said Bob Purkiss, chairman of the EUMC.

"The danger is ... how it has now embedded itself."

In the wake of the Sept. 11, 2001, hijacked airliner attacks on U.S. cities, people who "looked Muslim," mainly women wearing headscarves, became the victims of anti-Islamic sentiment, the report said.

The escalation of violence in the Israeli-Palestinian conflict and social and economic problems inside the EU resulted in a wave of attacks on Jews and synagogues across the 15-nation bloc, it added.

EU leaders were quick to condemn racist aggression against both religious minorities and call for dialogue, it said. But Beate Winkler, director of the Vienna-based agency, told reporters: "Immediately after Sept. 11 we
had a lot of positive initiatives by politicians, but it did not continue."

FEAR FUELS RACISM

The report said racism and xenophobia were expressions of EU citizens' fears about issues such as globalization, unemployment and Islam, which the media and politicians failed to present in a balanced way.

Mainstream politicians in Europe had allowed themselves to be pushed into a negative debate on immigration by far-right populist parties, Purkiss said.

"People are playing politics with the immigration issue rather than dealing with the real questions that need to be addressed," he said.

Purkiss said the EU needed to deal with the broader context of immigration, which he said it needed to spur economic growth because of labor shortages as its population ages.

"We need that wealth to pay for pensions," he said.

The report also focused on problems faced by immigrants in the labor markets, saying they were often paid less and given less attractive jobs than EU citizens with the same skills.

Migrants faced problems ranging from direct racism such as verbal abuse in the workplace to indirect discrimination in the form of unrealistic language requirements.

On average, the unemployment rate for immigrants is twice as high as national rates in EU member states, ranging from 22 percent in France to 5.3 percent in Portugal, and many migrants worked in the informal labor market, the study said.