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

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* 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)
By Ambar Warrick
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 .STOXX ended 0.6% lower
on the day, with the bulk of losses coming right before the
close, in line with declines on Wall Street. .N
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 .SXTP 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 .SX7P .SXIP 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 .SX6P were among the few gainers for the
day, with Suez SEVI.PA topping the STOXX 600 after larger peer
Veolia VIE.PA offered to buy a 29.9% stake in the French water
and waste firm from gas and power utility Engie ENGIE.PA 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.