March 23, 2020 / 7:49 AM / 17 days ago

UPDATE 3-European stocks back in red as virus spread feeds recession fears

* UBS sees Europe economy shrinking by 4.5% in 2020

* Travel and leisure stocks lead declines

* Energy stocks sole gainers on Total, Shell (Updates to close)

By Ambar Warrick and Sagarika Jaisinghani

March 23 (Reuters) - European shares fell again on Monday as the continued spread of the coronavirus fed into panic over its economic shock, with a recession in 2020 looking likely.

The benchmark STOXX 600 index ended 4.3% lower, erasing nearly all of its gains over the past two days, indicating that stimulus measures by major banks and governments appeared to be doing little to reassure investors.

Markets had briefly pared losses earlier in the day after the U.S. Federal Reserve underlined aggressive action to offset the economic disruption from the outbreak.

However, they swiftly sank back to session lows as the prospect of recession gave little impetus to buy into equities.

"The lockdown of large parts of Europe over the past two weeks has sharply worsened the economic outlook and a recession now appears inevitable," UBS economists wrote in a note, adding they expect the European economy to shrink by 4.5% this year.

"The economic shock Europe is facing will be very substantial."

Travel and leisure stocks continued to underperform their peers as more countries closed their borders and limited domestic movement.

British theatre operator Cineworld bottomed out the sector as British measures to combat the spread of the virus effectively crippled social life in the country.

Greece joined France and Spain in announcing a nationwide lockdown, while Italy banned even domestic travel as the number of fatalities there topped 6,000.

Industrials shed about 6% amid widespread factory shutdowns to curb the spread of the virus. British office space provider IWG shed 17% after it suspended its final dividend.

German shares shrugged off a 750 billion euro stimulus package from Berlin, closing about 2% lower as major car makers face a dual hurdle of production curbs and flatlining demand.

In another sign of growing corporate damage from the outbreak, Airbus fell nearly 14% after saying it was withdrawing its 2020 financial forecast, dropping a proposed 2019 dividend and suspending funding to top up staff pension schemes.

Nestle SA, the largest stock on the STOXX 600, dropped 6% for the day as its chief executive told employees to prepare for a "coronavirus storm", an internal memo showed.

Oil and gas heavyweights Total and Royal Dutch Shell both rose 6% after suspending their respective share buybacks and outlining cost cuts to cope with lower oil prices.

The two took the oil and gas subindex marginally higher for the day, making it the only gaining European sector.

Reporting by Sagarika Jaisinghani in Bengaluru; Editing by Shounak Dasgupta, Bernard Orr

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