European shares declined on Friday, setting up to end an action-packed week on a sober note on worries over the economic impact of a resurgent COVID-19 pandemic and the fate of a Brexit trade deal as well as stalled U.S. stimulus measures. Consequently, the pan-European STOXX 600 index slid 0.8percent, extending losses after a dour 2021 economic forecast from the European Central Bank had seen it end in the red on Thursday.

The index is set to break a five-week winning rally as a stalemate in discussions between the European Union and Britain raised the opportunities of Britain's exit from the economic bloc without a trade deal. Investors will be watching for Brexit updates with a Sunday deadline for a last ditch attempt at a deal.

"It's the fears that the talk from both sides has definitely switched to a more negative tone," said David Madden, market analyst at CMC Markets UK, adding markets still hope for some sort of a deal because stocks "aren't falling through the floor."

As European bond yields dipped, banks continued their slide. Spain's lender-heavy main index fell 1.9percent. Meanwhile, European Union leaders unblocked a 1.8 trillion euro (USD2.18 trillion) financial package late on Thursday to help the economy recover from the pandemic-induced recession.

But in the United States, the fiscal stimulus appeared unlikely after Democrat House Speaker Nancy Pelosi suggested that wrangling over a spending package could drag on through Christmas. A raft of stimulus measures since the onset of the pandemic has lifted sentiment on hopes of a global economic recovery. The STOXX 600 has risen 45percent since lows hit in March, but it remains more than 6percent down for the year.

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