European shares moved further away from their three-month peak on Thursday after a downbeat economic outlook from the US Federal Reserve and on worries of a second wave of Covid-19 cases.

The pan-European STOXX 600 fell 2.5 per cent, its fourth straight day of decline, with travel and leisure stocks sliding 4.3 per cent on fears of a further hit to demand.

TUI, Carnival Corp and British Airways-owner IAG were the top decliners on the STOXX 600.

Banks, automakers and oil and gas companies shed between 3.8 per cent and 4.6 per cent in reaction to the dour economic outlook.

A strong rally in risk assets halted this week, with stocks taking a fresh leg lower after the Fed on Wednesday warned of a long road to recovery.

The central bank expects the US economy to shrink 6.5 per cent in 2020 and the unemployment rate to be 9.3 per cent at the year's end.

Risk appetite was also dampened by the possibility of a fresh rise in US coronavirus cases, with a Reuters analysis showing infections rose slightly after five weeks of declines, partly due to more testing.

“A combination of these two factors appears to have infected sentiment in Asia markets with sharp falls there today, and this also translated into sharp falls today for markets in Europe,” Michael Hewson, chief market analyst at CMC Markets wrote in a morning note.

“Up until yesterday financial markets did not appear overly concerned about the prospect of a second wave.”

Lufthansa slumped 8.8 per cent after it admitted that positions of up to 26,000 employees are surplus to requirements, suggesting many more jobs will be cut at the German carrier.

Fiat Chrysler fell 5.6 per cent and Peugeot maker PSA 6.6 per cent after a report that the carmakers will face a lengthy EU antitrust probe over their planned $50-billion merger.

Consumer goods giant Unilever's UK-listed shares rose 1.4 per cent after proposing to combine its Dutch and British legal entities in a single holding company based in Britain.

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