The pan-European STOXX 600 closed 0.8% lower at 452.84 points but rose 1.4% in June, its fifth straight month of gains. The index is up 14.4% this year.

Automobile stocks were the worst performers of the day, shedding 1.9%. But the sector has raced past its peers this year with a more-than 25% jump.

The European benchmark stalled just a few points short of its biggest percentage gain in the first six months of a year since 1998, instead marking its best first half since only 2019, with a 13.5% rise.

Healthcare stocks were the best performers in June, adding 6.7%, while expectations of recovering demand saw retail stocks outpace their peers through the quarter to June, with a near 13% jump.

Graphic; STOXX 600's Jan-June Performance Over The Years - https://fingfx.thomsonreuters.com/gfx/mkt/yzdvxlnwdvx/STOXX%20600%20H1.PNG

Expectations of a sharp recovery in economic growth have propelled the STOXX 600 to record highs this year. It also marked a fifth straight quarter of gains.

Swiss bank UBS hiked its 2021 GDP forecast for the euro zone to 5.1% from 4.3%. But the bank warned that the Delta variant could be a risk.

"While we have thus become even more constructive on the Eurozone growth outlook, we acknowledge the downside risk stemming from the spreading of the Delta coronavirus variant, which could force countries to slow down or even reverse the lifting of mobility restrictions," Reinhard Cluse, chief European economist at UBS wrote in a note.

Concerns over the Delta variant saw travel and leisure stocks lag their peers in June, with a 4.9% loss.

High volatility at the end of the quarter saw the euro zone's so-called "fear gauge" surge to as much as 19.5150 points, its highest level in more than a week.

In company news, Dutch eyewear store operator Grandvision surged 14.2% as Ray-Ban maker EssilorLuxottica said it had decided to go ahead with a planned takeover of the company. EssilorLuxottica's shares were flat.

Indivior Plc jumped 6.4% after raising its annual revenue and profit forecast, encouraged by strong sales of its opioid addiction treatments in the first half of the year.

A flash reading showed Euro zone inflation fell to an annual rate of 19% in June, slightly below the central bank's target of 2%.

(Reporting by Sagarika Jaisinghani and Ambar Warrick in Bengaluru; Editing by Shounak Dasgupta, Uttaresh.V, William Maclean)

By Sagarika Jaisinghani and Ambar Warrick