European stocks break 4-day rally on Brexit trade talks, U.S. stimulus doubts

By Sruthi Shankar and Susan Mathew

(Reuters) -European shares fell on Friday as doubts over a post-Brexit trade deal and a stimulus package in the United States capped gains at the end of a solid week.

The pan-European STOXX 600 index broke a four-day rally to end 0.4% lower, reversing gains that followed a surprise rise in German business morale in December.

The German DAX gave up gains of as much as 0.8% to end in the red. The Ifo institute's upbeat data came even as Europe's biggest economy went into a strict lockdown to contain a second wave of coronavirus infections.

Britain's exporter-heavy index lost 0.3%, despite a weaker pound after Britain and the European Union said they remained far apart on a number of issues and that it was becoming more likely they would fail to reach a trade agreement before a Dec. 31 deadline. [.L]

"This is the real final crunch time, so that will likely effect the markets in a broader sense rather than just the pound play," said Connor Campbell, a financial analyst at Spreadex.

In the United States, Congress looked increasingly unlikely to meet a deadline to agree on $900 billion in fresh COVID-19 aid and instead may pass a third stopgap spending bill to keep the government from shutting down at midnight.

"Markets are heading into the weekend with these two big unknowns. Investors may not get to react until Monday morning because the answer, especially for Brexit, might be between Sunday and Monday morning," Campbell said.

The STOXX 600 ended the week with a 1.5% gain, its sixth week in the black in seven.

Optimism around vaccine rollouts in Britain and potential roll outs in other part of Europe before the year-end, as well as progress in U.S. stimulus talks underpinning hopes of a global economic recovery, lifted sentiment this week.

Travel & leisure stocks slipped on Friday, with British Airways-owner IAG down 2.1% after a media report that it had agreed to buy Spanish carrier Air Europa for 500 million euros ($612.55 million).

In M&A moves, Dutch health technology firm Philips rose 1.7% after it agreed to buy U.S. cardiac diagnostics and monitoring firm BioTelemetry in a deal worth $2.8 billion.

Finnish paint producer Tikkurila soared more than 60% after U.S. firm PPG Industries made an offer to buy the company for a total of 1.1 billion euros ($1.35 billion).

(Reporting by Sruthi Shankar and Amal S in Bengaluru; editing by Uttaresh.V, Saumyadeb Chakrabarty and Timothy Heritage)