(No European stock market report on Jan. 1 due to a UK/EU holiday)
* Investors book profits after record-setting December rally
* Caution sets in about trade progress in 2020 - analysts
* Benchmark European index clocks best year since 2009
* France's Latecoere gains on deal to buy Bombardier unit (Adds details, updates prices)
By Sagarika Jaisinghani
Dec 31 (Reuters) - European shares ended the final trading day of the decade with a whimper on Tuesday as investors locked in gains after a record rally 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 closed down 0.1%.
French, British and Spanish stocks lost between 0.1% and 0.7%, while Frankfurt and Milan bourses were shut for the year-end holidays.
Still, the benchmark index clocked its biggest annual gain since the global financial crisis as investor sentiment received a boost in December from a breakthrough in U.S.-China trade negotiations and signs of a smoother Brexit.
White House trade adviser Peter Navarro said on Monday a Phase 1 trade deal was likely to be signed in the next week.
Relatively loose monetary policy by the world's most influential central banks and robust economic indicators have also lifted global equities to record highs this month.
Data from China showed manufacturing activity expanded for a second straight month in December, partly on higher seasonal demand.
But with the finer details of the initial China-U.S. trade agreement not yet known, analysts said investors used the last trading day of the year to reposition for 2020.
"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.
For European traders, 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.
Investors 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 2% 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 and Ed Osmond