European shares closed slightly lower on Friday as investors locked in profits ahead of the weekend and once again focused on the ongoing discussions surrounding the "fiscal cliff" in the U.S.
France's CAC 40, Britain's FTSE and Spain's IBEX closed lower but Germany's DAX moved higher.
The FTSEurofirst 300 Index provisionally closed down 0.2 percent at 1,133.21 points as the lack of a solution to the "fiscal cliff" -- automatic spending cuts and tax increases due to begin at the start of the new year -- continued to drag on markets. President Barack Obama and Republican House Speaker John Boehner met at the White House on Thursday but there was no indication if any progress was made.
European stocks traded higher earlier in the morning session after an improvement in PMI data for the euro zone and after Fitch affirmed France's triple-A rating.
But sentiment was dampened by the fact that euro zone leaders postponed major decisions on economic integration till June next year at a summit on Thursday.
Euro zone December Composite Flash PMI came in at 47.3 against 46.5 in November. Several countries saw improvements in PMI readings. France's December Flash Composite PMI came in at 45.0 against 44.3 in November. In Germany, December Composite Flash PMI data came in at 50.5 compared to 49.2 in November.
Employment statistics for the third quarter were also released on Friday for the euro zone as a whole, and showed a drop of 0.2. Inflation showed signs of easing as the figure for November fell to 2.2 percent.
Meanwhile, ratings agency Standard and Poor's has downgraded the outlook on the U.K.'s coveted triple-A credit rating to negative. The agency joins the other two largest credit ratings agencies, Moody's and Fitch, in putting the country on "negative outlook" and said it was concerned at the lack of political will to tackle its debt, public finances and weak economic growth.
Stocks in focus on Friday included Swiss banking giant UBS. The probe into manipulation of the London interbank offered rate (Libor) continues to haunt banks with reports that UBS could face a fine of $1 billion to settle rate-rigging allegations next week – more than double that paid by Barclays, the only bank so far to announce a payout over the scandal.
Fiat shares were suspended after dropping by more than 5 percent on reports the car-maker was talking to banks about a possible capital increase.
Shares in telecom-equipment company Alcatel Lucent jumped over 10 percent after the firm confirmed reports that it had secured a new credit facility.
The biggest loser on the German DAX Index was Deutsche Bank after the firm announced on Friday that restructuring costs are likely to hit fourth-quarter earnings.