UPDATE 2-European shares fall as ECB leaves policy unchanged with no new stimulus

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* ECB watching euro closely, keeps policy unchanged

* Most European sectors end in negative territory

* LVMH to counter sue Tiffany in fight over takeover

* EQT up as it readies sale of German energy services firm

(Updates price action, adds comments)

By Shreyashi Sanyal

Sept 10 (Reuters) - Major European bourses closed lower on Thursday after the European Central Bank kept its policy rates unchanged and said its existing stimulus measures were sufficient and likely to be used in full.

The pan-European STOXX 600 .STOXX index dropped 0.6%, as ECB President Christine Lagarde said the central bank is carefully watching the implications of a strong euro. With the economic recovery losing momentum there is an expectation that the bank will at some point provide more stimulus. balanced tone struck by the ECB at today's meeting was less dovish than many investors may have been expecting," said Jai Malhi, global market strategist at J.P. Morgan Asset Management.

"The lack of policy change at the ECB is much more to do with the reduced effectiveness of the remaining options at its disposal rather than the central bank being comfortable with the current state of the economy."

Markets closely followed the latest back and forth between the UK and the European Union involving Britain's exit from the bloc.

The EU told Britain it should urgently scrap a plan to break their divorce treaty but Prime Minister Boris Johnson's government refused and instead pressed ahead with a draft law that could sink four years of Brexit talks. European banks .SX7P fell 0.5%, while travel and leisure stocks .SXTP bounced 0.7% following steep declines in the previous session.

Among stocks, LVMH LVMH.PA shares rose 0.1%, as the French luxury goods group said it would counter-sue Tiffany, accusing it of mismanagement through the coronavirus crisis after the U.S. jeweller accused the French group of trying to bow out of a $16 billion acquisition deal. firm EQT EQTAB.ST rose 2% on readying a sale of German energy services firm Getec as it seeks to benefit from high valuations for energy infrastructure assets, people familiar with the matter said. VOWG_p.DE trucks arm Traton 8TRA.DE dropped 1% after it upped its takeover offer for U.S. peer Navistar NAV.N to $43.00 per Navistar share, up from $35 per share. Workshop GAW.L jumped 11.7% to the top of the STOXX 600 after saying trading in the three months to end August topped its expectations.

Italy's Nexi NEXII.MI gained 6.8% after a report that the payments firms and SIA are close to clearing a major hurdle to a potential merger.