European shares rebound as Brexit trade deal progress overshadows virus worries

European shares posted their best day in six weeks on Tuesday, rebounding from a sharp sell-off as optimism around Brexit and U.S. stimulus helped to allay worries of a further hit to the global economy from a new coronavirus variant in Britain.

The pan-European STOXX 600 index finished up 1.2% on broad-based gains, recovering from a more than 2% slide in the previous session, which was also its biggest one-day drop in nearly two months.

The European Union is giving a "final push" in a bid to strike a Brexit trade deal with Britain, its chief negotiator said on Tuesday, with the two sides inching towards agreement on fishing - a major sticking point - days before the end of Britain's transition deal since it left the bloc.

"(The progress in fishing) highlights the willingness to move towards something that will eventually break the current deadlock," said Joshua Mahony, senior market analyst at online trading platform IG.

Helping London's blue-chip index reverse early losses, data showed Britain's economic recovery from its coronavirus crash was quicker than previously thought in the third quarter. The index closed 0.6% higher, breaking a three-day losing streak.

The losses were triggered by the emergence of a fast-spreading new coronavirus variant in Britain, which has forced wider lockdowns there and led countries around the world to close their borders to the UK.

The EU on Tuesday recommended rolling back border closures to allow freight to resume.

"The COVID-led economic isolation of the UK (is) serving to provide a heavy dose of reality of the kind of disruption that could come if negotiators fail to agree a (Brexit trade) deal by year-end," Mahony said.

Technology stocks and Brexit-sensitive banks led the rebound in Europe, while materials stocks lagged as they tracked a decline in underlying commodity prices.

Meanwhile, U.S. President Donald Trump on Tuesday signed a stopgap measure to fund U.S. agencies for another week after Congress passed a long awaited $892 billion COVID-19 aid package overnight.

AstraZeneca was the biggest weight on the pan-region index, down 1.5% after its experimental asthma drug developed with U.S partner Amgen failed to meet the main goal of a late-stage trial.