UPDATE 1-HNA Group's airline caterer Gategroup grounds Swiss listing

(Adds details and background, trader comment)

ZURICH, March 26 (Reuters) - Airline caterer Gategroup, part of China's cash-strapped conglomerate HNA Group, has ditched plans to list on the Swiss stock exchange in a deal valuing the company at up to $2.8 billion.

Gategroup said on Monday it would not pursue a flotation on the SIX Swiss exchange, citing a "a gap in valuation under current market conditions."

Bookbuilding began this month, with a price range set at 16 to 21 Swiss francs per share. The target price would have implied a total market capitalisation of about 2.1 billion to 2.6 billion Swiss francs ($2.75 billion).

But traders said there had been some skepticism about the proposed listing, and even disgruntlement about how HNA acted in deciding to sell the company it bought only in 2016.

"The signs are it's not going very well, investors are reluctant to take part and certainly not at the top end of the price range," a Zurich-based trader had told Reuters on Friday.

"We don't believe the company is worth more than 1.9 billion to 2 billion, and not as much as 2.6 billion. There's also a certain China discount as well."

Gategroup, which employs 43,000 people, was listed in Switzerland before HNA bought it.

HNA announced this month it was seeking a public listing for Gategroup, raising funds to help tackle HNA's liquidity crunch.

The move is the latest in the aviation-to-financial services conglomerate's drive to restructure its operations, while raising cash by selling equity and real estate assets.

"Many investors are upset about how HNA has behaved. They don't want to buy back shares they sold for 1.4 billion francs for 2 billion francs or even more," the Zurich trader said.

A spokeswoman for Gategroup declined to comment on details about interest from potential investors or whether the planned initial public offering could be restarted.

($1 = 0.9461 Swiss francs) (Reporting by John Revill and Rupert Pretterklieber; Editing by Michael Shields)