The Lumix DMC FZ 35 has the Leica lens which contributes to a sharper image compared to other non Leica-lens Lumix. The Panasonic has also a wider angle lens, as it covers 27mm at its widest while the canon is only at 28mm.
The great thing about the Canon is that it has a hot shoe for external flashes for that extra power burst of flash for a longer range of flash coverage. Plus, the LCD screen swivels and tilts, convenient for taking photos or videos in an unconventional position, like taking a photo over a crowd for example.
Never ever estimate Panasonic, as it's Lumix LX3 provides DSLR like image quality in a compact sized package.
If i were to choose from both, I'd go for the Canon Powershot SX20 IS as it gives me the flexibility to add an external flash as it is useful in dark places. Plus, it gives me more zoom coverage of 20x optical zoom range, compare to the Panasonic's 18x. But this is just a personal opinion, as I don't own both cameras.
Just a piece of advice... If you are going for Superzoom cameras such as the both above mentioned cameras, I prefer to go with an entry DSLR, like the Canon EOS 1000D for that superior image quality. You can always get that same range of zoom as to that of the Powershot by investing it on a telephoto zoom lens. Just an advice though. Because it will be worth the money.
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