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UPDATE 2-European stocks tread water, all eyes on Fed

By Medha Singh and Susan Mathew

* Carl Zeiss drops as BofA Merrill starts with 'underperform'

* Colruyt slides after cautious outlook

* Focus on Fed statement, Jerome Powell's speech

* Trump says to meet Xi at G20, trade talks to resume (Updates to close)

By Medha Singh and Susan Mathew

June 19 (Reuters) - European stock markets closed little changed on Wednesday in anticipation of the U.S. Federal Reserve policy statement, a day after European Central Bank's dovish calls raised hopes of a more accommodative Fed.

The pan-European index finished up 0.05% with defensive stocks weighing the most, while banks posted a 1.4% rise.

"There is still an element of risk appetite, thanks to the ECB and hopes that the Fed will deliver a rate cut," said Mike van Dulken, Head of Research at Accendo Markets.

"It might not be imminent but the potential for that before the end of the year is enough for markets to keep holding risk further."

ECB chief Mario Draghi flagged a potential return to bond-buying and lower interest rates if the economy does not improve, sending the STOXX 600 index to its best performance in five months on Tuesday.

The U.S. central bank is expected to echo the ECB's easing policy stance at the end of its two-day meeting at 1800 GMT followed by a press conference by Chaiman Jerome Powell.

Expectations of policy easing by the ECB and the Fed has helped the STOXX 600 recoup most of those losses from last month.

Auto stocks were also up 1%, continuing their rally spurred by news that China and the United States are rekindling trade talks ahead of the G20 meeting next week.

The resumption in trade talks after a lull also lifted chipmakers, with Germany's Siltronic recovering nearly 5% after falling sharply on Tuesday.

Corporate newsflow saw CYBG gain 6.2% after the British lender pledged to make an additional 50 million pounds ($62.75 million) in savings from its takeover of rival Virgin Money.

Meanwhile, Belgian food retailer Colruyt tumbled 15.5%, and was the biggest decliner on the STOXX, after the group warned about a deteriorating economic climate in France and Belgium.

Medical technology supplier Carl Zeiss slid 5.5%, after Bank of America Merrill began coverage of its shares with an "underperform" rating.

Italy's FTMIB was notably higher. Deputy Prime Minister Matteo Salvini said on Tuesday Rome would press ahead with a plan to settle overdue state payments by issuing mini-bills unless a better solution was put forward.

"It would give them (Italy) a short term reprieve and help with some of the overdue payments. Although they still need to sort out their budget deficit and the like, this is at least a short-term solution," van Dulken said.

(Reporting Amy Caren Daniel, Medha Singh and Susan Mathew in Bengaluru; Editing by Patrick Graham)