When I played and ran MERP, I alway took the world of Middle Earth to be a setting where magic is diminishing.
The mighty feats of the past ages are no longer possible in the current age. So, when you look at TA 3019 (the year of the War of the Ring) magic is mostly gone. However, we know that magic was much more prevalent beforehand. In the first it was ever present. In the second age, it was less powerful but nonetheless mighty feats were possible. Meanwhile, in the third age, less and less of it is visible or possible.
MERP is set in TA 1636 just after the great plague. This is 1383 years before the War of the Ring! So, there might still be a fairly large amount of "magic" about. Moria is still open and trades with everyone, Lorien accepts (reluctantly?) visitors, and Elrond's house is not a mythical place but just down this road. The Northern kingdoms still stand, although not for long. This is the time that Rolemaster/MERP try to model. A time where magic is rare but not uncommon.
The way I ran it is that Sauron, well, mostly his minions are actively hunting magicians to weaken the opposition. So, large displays of magic will attract unwanted attention. This forces the players to be careful and not lob fireballs at every encounter.
As for magic items, look at the Company of the Ring: they all have a dozen of them around! Most are very powerful indeed: Anduril? The Ring? A mail shirt of mithril?. Who can say that a +10 sword in TA 1636 does not become just a normal sword in TA3019 -- that is if it even survives that long!
Finally, what the system marks as magic and spells could just be skills by another name. Most of the channelling spells are weird channels of nature. Most of the mental spells are just that, your mind creating things. Essence is a little more difficult to rationalise this way.
TL;DR Basically the setting of Middle Earth of TA 1636 is what we see as high magical compared to TA 3019, but low magic as compared to the First Age. Rolemaster makes an okay system to model that: magic users are rare, for the most part, their spells can be rationalised as special skills, and them being blatant about magic will get you killed.
Note that this is to answer the question whether Rolemaster/MERP can be reconciled with Middle Earth. Clearly, I think it can using the above arguments. Whether it is a good model for Middle Earth is another matter -- I think it does a poor job. But that is a matter for either another question or discussion.
Best Answer
For magic items, Treasure Companion is invaluable. But for regular items, the book you want is ...And a 10-Foot Pole. Unfortunately, its out of print, copies are expensive, and one of the PDFs that's not back in print via RPGNow. But, if you search the web for it, you should be able to find the PDF.