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UPDATE 2-European shares end lower on dismal inflation data, gain for August

(For a live blog on European stocks, type LIVE/ in an Eikon news window)

* France’s Suez tops STOXX 600 on merger talks

* German, Italian inflation comes below expectations

* STOXX 600 gains about 2.9% in August

* Travel and leisure stocks outperform in August (Adds details, updates to close)

Aug 31 (Reuters) - European shares ended Monday lower, weighed down by weak financial stocks after disappointing German and Italian inflation data, but closed August higher thanks to optimism over new stimulus measures and a COVID-19 vaccine.

The pan-European STOXX 600 index ended 0.6% lower on the day, with the bulk of losses coming right before the close, in line with declines on Wall Street.

The index added about 2.9% in August, but still remains around 15% below pre-pandemic highs due to middling economic data and a resurgence in COVID-19 cases. It has stuck to a roughly 30-point trading range since June.

Travel and leisure stocks led gains for the month, adding nearly 15% as countries relaxed some virus-driven curbs on travel. Still, the sector remains sensitive to any spikes in cases, and is among the worst performers this year.

Financials were the biggest weights on the index for the day, after German and Italian inflation data missed expectations for August.

EU inflation data is due on Tuesday and is widely expected to remain below the European Central Bank’s target.

“There had been speculation as to whether the current crisis would be deflationary or inflationary. Today’s German inflation data suggest that for the time being the deflationary threat is clearly more pressing than any inflationary one,” wrote Carsten Brzeski, Chief Economist, Eurozone and Global Head of Macro at ING.

The weak inflation reading could prompt action from the ECB to release more money into the market, a stance that would be similar to one promised by the U.S. Federal Reserve last week.

“We see the move in Fed policy as confirming an important shift that could also put pressure on other central banks — such as the European Central Bank — to tolerate higher levels of inflation,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note.

Utility stocks were among the few gainers for the day, with Suez topping the STOXX 600 after larger peer Veolia offered to buy a 29.9% stake in the French water and waste firm from gas and power utility Engie for 2.9 billion euros.

The three stocks were the top performers on the STOXX 600 for the day.

British markets were closed for a holiday. (Reporting by Ambar Warrick in Bengaluru; Editing by Shailesh Kuber and Andrew Heavens)

Nuestros Estándares: Los principios Thomson Reuters.

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