Europe close: Shares rise on vaccine rollout, US stimulus, Brexit deal

European stocks finished higher on the first session back from the Christmas break, with sentiment boosted by the Brexit trade deal, US stimulus package and the roll out of Covid-19 vaccinations in the region.

The pan-European STOXX 600 was up 0.82%, a fifth straight session of gains with the index climbing 2.72% over the period.

UK shares rose 1.67% after Britain and EU on Thursday signed a Brexit trade agreement, averting a crashout from the bloc - although London-listed banking stocks bucked the trend over fears about access to European markets for financial services firms.

"The pound has been held back through a mix of soaring covid cases and fear of a bumpy Brexit road ahead. While nations prepare for a year of sharp growth, there is more uncertainty for the UK given the simultaneous exit from the EU," said IG analyst Josh Mahoney.

"Hospitals are becoming increasingly stretched by the covid surge seen over recent weeks. With Christmas celebrations likely to see another flare-up in cases this week, there is a feeling that we could soon enough see Tier 5 restrictions put into place in a bid to arrest the current spread."

Trading volumes were expected to be thin with many traders still away over the holiday season.

US markets were mixed at the opening after hitting record highs on Monday. In focus on Tuesday was a mixture of vaccine rollouts, fiscal stimulus and easy monetary policy across the globe amid the pandemic, with the US now having recorded more than 19.78m total cases, claiming the lives of more than 343,180 Americans in the process.

Having indicated he would not approve the $900bn coronavirus relief package and associated $1.4trln spending bill, US President Donald Trump signed off on both on Sunday, avoiding a partial government shutdown and ensuring millions of Americans would receive direct payments.

Investors were also cheered by news that EU ambassadors had on Monday given the green light for the Brexit trade deal to come into provisional force from 1 January. Official approval is expected later on Tuesday, with some countries, such as Sweden, still needing to consult their national parliament.

In equity markets, gains were broad-based, with travel and leisure stocks boosted by hopes of a recovery in 2021.

Shares in British Airways and Iberia parent IAG were higher, along with Trainline and Deutsche Lufthansa, while aircraft engine maker Rolls-Royce and InterContinental Hotels also gained.

Banking shares were lower after UK Prime Minister Boris Johnson confessed that the EU had won a better Brexit deal on financial services, with the UK now forced to enter more negotiations in an effort to seek better access to European markets. NatWest, Lloyds, Barclays and HSBC all fell.