* STOXX 600 ends the year 3.7% lower
* Volumes thin in a shortened session
* Spain, UK lag with double-digit falls in 2020
* Energy stocks worst 2020 performers, tech outperforms (Updates to market close)
Dec 31 (Reuters) - European stocks closed lower on Thursday, ending 2020 in the red as tighter coronavirus restrictions in Britain and higher U.S. tariffs on some EU products dampened spirits on the final trading day of the year.
Volumes were thin, with many traders away and most major European bourses closed, with the exception of London, Madrid and Paris.
The pan-European STOXX 600 index recorded a 3.7% drop in 2020 - lagging its Asian and Wall Street peers that traded near record highs - as a surge in coronavirus cases and concerns about a chaotic Brexit weighed on the continent’s markets.
Still, the index is only 7% below its record high after rallying about 50% from March lows and as expectations of more stimulus, the rollout of coronavirus vaccines and a Brexit trade deal sealed last week raised bets on a stronger recovery in 2021.
“Vaccines will inspire a global recovery, central banks will leave rates at zero even if inflation rises to fund exploding government deficits everywhere,” Jeffrey Halley, a senior market analyst at Oanda, wrote in a note.
“The search for yield in a zero percent world flooded with unlimited free money from the world’s central banks, means the K-shaped recovery, asset price inflation scenario seems a certainty.”
At the end of a shortened session, London’s FTSE 100 fell 1.5% and Paris’s CAC 40 dropped 0.9%. Spanish stocks fell 1%.
Among the European stock sectors, energy stocks were the worst annual performers, shedding 25.5% as movement restrictions to contain the virus eroded oil demand.
Technology stocks outperformed their peers with a 14.1% annual gain as the sector proved to be the most resilient to pandemic-related disruptions.
The FTSE 100 marked its worst year since the 2008 financial crisis - with its near-term prospects hit after Prime Minister Boris Johnson ordered millions more people to live under the strictest COVID-19 restrictions to counter a new virus variant.
The German DAX ended 2020 with a 3.5% gain - just below all-time highs - helped by strong demand for technology stocks and better growth prospects for major trading partner China.
Lender-heavy Italy’s FTSE MIB was down 5.4% for the year, while Spain’s IBEX - among the worst performers in the region - marked its worst year since 2010, shedding more than 15%.
The tourism-reliant economy was hit by pandemic restrictions, while a consolidation in Spain’s banking sector - that brought the number of banks to 10, down from 55 prior to the 2008 economic crisis - failed to impress investors.
France’s Airbus, Safran and liquor makers Pernod Ricard and Remy Cointreau fell between 1.5% to 4% after the U.S. government said it would raise tariffs on EU products including aircraft components and wines from France and Germany.
The move was the latest twist in a 16-year battle over aircraft subsidies between Washington and Brussels.
European markets will be closed on Friday for New Year’s Day.
Reporting by Sruthi Shankar in Bengaluru; Editing by Sriraj Kalluvila and Barbara Lewis