UPDATE 2-Oil, Fed nerves keep European shares grounded

* Defensive sectors gain on STOXX 600
* Zalando falls after share placement by Kinnevik
* Fed decision on U.S. interest rates due on Wednesday

(Updates to close)
By Sruthi Shankar
Sept 17 (Reuters) - European stocks closed marginally lower
on Tuesday as energy shares gave up a chunk of Monday's big
gains and banks lost steam ahead of a likely interest rate cut
from the U.S. Federal Reserve.
The pan-European STOXX 600 index .STOXX ended about 0.1%
lower as investors sought refuge in defensive sectors such as
consumer staples and healthcare after the weekend's attacks on
Saudi Arabian oil facilities heightened geopolitical tensions.
Oil & gas sector .SXEP dropped 0.8% after Reuters reported
that Saudi Arabia's oil output will be fully restored quicker
than expected, taking two or three weeks not months as initial
indications suggested, according to sources. The index notched its biggest percentage gain since January
on Monday after the Saudi attack disrupted more than 5% of
global oil supply.
Worries of an escalation in Middle East conflicts and the
impact of a spike in oil prices on global growth cast a pall
over investor sentiment.
"We continue to think that US-China trade tensions and the
outlook for Fed policy remain more important drivers of oil
prices," Capital Economics analysts wrote in a note.
"Nonetheless, we would not rule out entirely the possibility
of an escalation in tensions, leading to an outright conflict in
the Middle East."
While the Houthi group, which is fighting a Saudi-led
coalition in Yemen, claimed responsibility for the attack, U.S.
President Donald Trump blamed Iran. That accusation prompted
Iran's supreme leader on Tuesday to rule out talks with
Washington.
Investors were also on the fence ahead of the Fed's policy
meeting, which concludes on Wednesday. The central bank is
expected to cut interest rates for the second time this year to
prop up slowing economic growth.
The European Central Bank last week cut rates deeper into
negative territory and relaunched bond purchases with no
scheduled end-date. Banks .SX7P slumped the most among the main European
subsectors with a 2% drop and Italian banks .FTIT8300 also
fell as much.
The healthcare .SXDP , utilities .SX6P , real estate
.SX86P and food and beverage .SX3P indexes - commonly
considered the defensive sectors - posted some of the biggest
gains after taking a hit in recent weeks amid a turn to growth
stocks.
The Swiss stock index .SSMI , which includes many
dividend-paying companies, gained about 0.5%.
Frankfurt-listed shares .GDAXI ended flat as data from the
ZEW institute showed the mood among German investors improved
more than expected in September, although warned that the
outlook remained negative due to trade disputes and Brexit
uncertainty. Shares in Zalando ZALG.DE slumped about 10% after a share
placement by top investor Kinnevik in the e-commerce retailer.
The broader retail index .SXRP fell 0.6%.
Swedish garden equipment maker Husqvarna HUSQb.ST fell
4.3% after it stuck to an operating margin target starting from
2020 as it unveiled new financial goals. British clothing retailer French Connection FCCN.L slid
13% after the company said it expects the sale process to be
concluded by the end of the year, delaying it for the second
time.