European stocks closed in negative territory on Friday, paring earlier gains after the U.S. announced fresh sanctions on Iran.
The pan-European Stoxx 600 had dipped below the flatline by the closing bell, with most sectors and all major bourses in the red. The blue-chip stock index closed lower by 0.12%.
The FTSE 100 in London closed the session down by 0.14% to close at 7587.
Sentiment was dented shortly before the end of the European trading session when U.S. Secretary of State Mike Pompeo and Treasury Secretary Steven Mnuchin announced new sanctions on Iran's metal exports and eight senior Iranian officials.
The announcement came days after Iran launched several missiles at Iraqi military bases that housed U.S. troops.
Prior to the announcement, global market sentiment had been improving as tensions between Washington and Iran appeared to be easing.
President Donald Trump said Wednesday that Iran appeared to be "standing down" following the missile strikes, which were in retaliation to Washington's killing of top Iranian general Qasem Soleimani.
Reports emerged Thursday claiming a Ukraine-bound flight that crashed shortly after take-off from Tehran had been shot down by an Iranian missile. Government officials say it could have been downed by mistake. Iran's aviation regulator dismissed the claims as "illogical rumors," and Tehran maintains the aircraft crashed due to a technical problem.
Elsewhere, seemingly thawing Sino-U.S. relations and optimism on the prospect of a trade deal between the world's two largest economies had also boosted sentiment during earlier deals on Friday.
Chinese Vice Premier Liu He is due to sign an initial "phase one" trade deal with the U.S. next week. Liu will visit Washington on Jan. 13-15, Beijing said on Thursday.
Stocks on Wall Street rose to record highs on Friday despite a weaker-than-expected December jobs report, but the Dow Jones Industrial Average fell into negative territory following Pompeo and Mnuchin's announcement.
Back in Europe, U.K. lawmakers approved legislation that will allow the country to exit the EU on Jan. 31 with a withdrawal deal. Meanwhile in France, the government has stood its ground on proposed pension reforms despite protests from tens of thousands of demonstrators across the country.
EasyJet shares jumped 4.2% after competitor Ryanair raised its full-year profit forecast. Ryanair stock was up by 5.5% during afternoon trade following the promising trading update on the back of a strong holiday season, while British Airways parent IAG also added 4.8%.
Shares of Evolution Gaming gained 6.3% after Parx Casino selected the company's products for the launch of new online casino services in Pennsylvania and New Jersey.
RWE climbed 6.4% on the back of a newspaper report suggesting that the German electricity utility could receive up to 2 billion euros ($2.2 billion) in compensation for a state-ordered shutdown of power stations.
Tullow Oil climbed 7.6% to lead the Stoxx 600, while at the other end of the European benchmark, retailer B&M saw its shares slump 6% after reporting slower-than-expected sales growth over the Christmas quarter.