* Stocks shed early gains, travel stocks lead drop
* U.S. Fed set to release policy statement at 1800 GMT
* Tyremaker Continental slides after report of cost cuts
* Just Eat Takeaway bottoms out STOXX 600 (Adds details, updates to close)
By Sruthi Shankar and Ambar Warrick
June 10 (Reuters) - European stocks swung both ways before settling lower on Wednesday as investors awaited the U.S. Federal Reserve’s first economic projections since the COVID-19 pandemic set off a recession in February.
After gaining as much as 0.9% at the open, the pan-European STOXX 600 ended down 0.4%, falling for a second straight session. Travel and leisure stocks led declines.
Food ordering firm Just Eat Takeaway bottomed out the STOXX 600, down 13.3%, after saying it was in advanced talks to buy Grubhub Inc in an all-stock deal.
While no major policy announcements are expected when the Fed wraps up its meeting later in the day, investors will scrutinise its remarks on the health of the U.S. economy, given that its virus-related loosening of monetary policy has flushed markets with money and helped global equities recover from their March lows.
The central bank’s projections are expected to point to a collapse in output this year and near-zero interest rates for the next few years. Any indication that the bank could rein in its recent stimulus measures would be likely to spook investors.
“European markets are on the back foot once again, despite early gains, with traders fearing that the recent recovery in stocks could see (Fed Chair Jerome) Powell take his foot off the gas,” Joshua Mahony, senior market analyst at IG, wrote in a client note.
The continent’s markets have seen a broad recovery in recent weeks, with investors moving into cheap, growth-sensitive stocks such as banks and oil companies on hopes that the worst fallout from the health crisis is over.
However, the banking index fell 1.3% despite an early boost from a Reuters report that European Central Bank officials were drawing up a scheme to cope with potentially hundreds of billions of euros in unpaid loans.
“It is clear that investors are increasingly optimistic that the worst of the COVID-19 pandemic is over and that economies will recover swiftly,” said Mark Haefele, Chief Investment Officer, UBS Global Wealth Management.
“We believe a degree of caution is warranted. Investors have moved quickly to price in good news.”
Lufthansa slid 5.7% after Germany said it planned to extend its travel warning to countries outside Europe until Aug. 31.
Continental fell 3.6% after a media report cited the German automotive supplier’s CEO as saying it needed to save hundreds of millions of euros and would probably have to lay off workers due to a slump in demand caused by the pandemic. (Reporting by Sruthi Shankar in Bengaluru; Editing by Arun Koyyur, Emelia Sithole-Matarise and Kevin Liffey)