* U.S. Fed’s corporate bond-buying plan sets off rally
* Travel, construction, banking stocks lead gains
* Cineworld up after saying all theatres to reopen by July
* Germany’s Zalando slips following stake sale (Adds comments, updates prices to close)
By Sagarika Jaisinghani and Shreyashi Sanyal
June 16 (Reuters) - The pan-European STOXX 600 index recorded its best day in a month on Tuesday, joining a global rally after the prospect of historic monetary and fiscal stimulus revived hopes of an economic rebound from the COVID-19 pandemic.
The index rose 2.9%, recovering some of the losses of recent sessions when grim economic forecasts and a resurgence in infections in the United States and China encouraged investors to play safe.
German and Italian shares outperformed their European peers, with cyclical sectors including travel , construction, banks and autos gaining 3-4%.
Aggressive global stimulus has helped to power a rebound in European equity markets since a coronavirus-fuelled crash in March, with the STOXX 600 index now only about 16% below its February record high.
The U.S. Federal Reserve will start purchasing corporate bonds on Tuesday through the secondary market corporate credit facility, one of several emergency facilities to shore up liquidity.
“It reinforces our view that the central bank’s actions will be conducive to further gains in the prices of equities,” said John Higgins, chief markets economist at Capital Economics.
But Fed Chairman Jerome Powell said a full U.S. economic recovery will not occur until the American people are sure that the novel coronavirus epidemic has been brought under control.
Further boosting global sentiment, a report said the Trump administration was preparing a nearly $1 trillion infrastructure proposal, while talk that U.S. firms may be allowed to work with China’s Huawei on new 5G standards eased trade jitters.
Europe’s volatility index retreated for a second straight day and was on track for its biggest daily percentage fall in a month.
Travel and leisure stocks rose 1.7%, with the British cinema operator Cineworld rising 1% after saying it expected all of its theatres to reopen by July.
The German airline Lufthansa was 2.5% higher after saying late on Monday it was seeking agreements with worker representatives by June 22 on how to make cuts equivalent to 22,000 full-time positions.
The German online fashion retailer Zalando fell 4.2% after Swedish investment firm Kinnevik AB sold a stake.
Equipment rental giant Ashtead Group soared 9.6% to a record high after proposing a dividend at a time when most firms have scrapped payouts to shore up cash reserves to ride out the economic slump. (Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Anil D’Silva, Kirsten Donovan and Kevin Liffey)