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* Investors book profits after record-setting December rally
* Caution sets in about trade progress in 2020 - analysts
* Benchmark European index still set for best year since 2009
* France's Latecoere gains on deal to buy Bombardier unit
By Sagarika Jaisinghani
Dec 31 (Reuters) - European shares looked set to end the decade with a whimper on Tuesday as investors locked in gains after a record rally that was fuelled by optimism around trade and easing fears of a global recession.
In a shortened session ahead of the New Year's Eve celebrations, the pan-European STOXX 600 index shed 0.3%.
French, British and Spanish stocks lost between 0.4% and 0.8%, while Frankfurt and Milan bourses were shut for the year-end holidays.
"While market volumes are predictably light, investors continue to strike a year-end cautionary tone as December optimism is gradually giving way to 2020's uncertainty," Stephen Innes, a market strategist at AxiTrader, wrote in a note.
Global equities notched multiple record highs in December as investors cheered a breakthrough in U.S.-China trade negotiations and signs of a smoother Brexit.
The upbeat mood, coupled with robust economic data and a relatively loose monetary policy by the world's most influential central banks, have set the benchmark European index on course for its biggest annual gain since the global financial crisis.
But with the finer details about the Phase 1 trade deal not yet known, analysts say scepticism is building around how long the truce will last.
"Once the (Phase 1) deal is signed, investors will then press to consider ... how much more progress can be realistically expected ahead of the US elections next year," Innes said.
For European investors, Brexit clouds are gathering again.
Although Britain's exit from the European Union is now almost certain on Jan. 31, Prime Minister Boris Johnson's hard line on the country's future trade relationship with the bloc has again fanned fears of a no-deal Brexit.
Traders will also be looking at Germany for concrete signs of economic growth, after Europe's powerhouse teetered on the brink of recession this year.
Despite equities in the country being highly sensitive to trade progress, German shares rose only 0.1% in December, widely underperforming their regional peers.
For the year, the STOXX 600 rose about 23%, but lagged both the wider MSCI world index and the benchmark S&P 500.
In thin corporate news on the final trading day of the year, French aeronautics group Latecoere gained 1.7% after agreeing to buy Bombardier's electrical wiring interconnection system business for around $50 million. (Reporting by Sagarika Jaisinghani in Bengaluru Editing by Saumyadeb Chakrabarty)