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* AstraZeneca shares fall on $39 billion Alexion bill
* EU, UK extend Brexit trade talks beyond Sunday deadline
* German shares jump 0.8%, best session in three weeks
* Germany prepares stricter lockdown, stay-at-home shares surge
* U.S. to begin administering Pfizer-BioNtech COVID-19 vaccine (Updates to close)
By Susan Mathew
Dec 14 (Reuters) - European shares rose on Monday as a decision to extend trade talks between Britain and the European Union kept hopes of an eventual deal alive, but gains in London's blue-chips lagged a higher pound and a near 6% drop in AstraZeneca weighed.
With banks .SX7P in the lead, Europe's benchmark STOXX 600 index .STOXX rose 0.4% after breaking a five-week winning streak to end 1% lower last week.
Optimism also stemmed from hopes of an end to the COVID-19 pandemic as the United States was set on Monday to begin inoculating its citizens with the Pfizer-BioNtech vaccine. Last week, Britain became the first Western nation to begin mass vaccinations. MKTS/GLOB
EU Brexit negotiator Michel Barnier said a new trade pact to govern around $1 trillion in trade with Britain, currently free from tariffs and quotas, was still possible as leaders from both sides decided to extend talks beyond a Sunday deadline. as fishing in UK waters and how to safeguard fair competition remained sticking points, UK Prime Minister Boris Johnson sounded sceptical of a breakthrough less than three weeks ahead of the five-year finale to Britain's exit from the bloc.
"While a deal still feels (narrowly) more likely than not, the timing remains up in the air," said James Smith, developed markets economist at ING.
"Politically speaking, there's not much to stop talks running very close to the New Year's deadline."
London's FTSE 100 .FTSE was range-bound, and ended the session 0.2% lower as a rising pound, declining energy shares and AstraZeneca AZN.L restrained the market. .L O/R GBP/
AstraZeneca posted its worst session in nine months as investors priced in the British drugmaker's move to buy U.S. drugmaker Alexion Pharmaceuticals ALXN.O for $39 billion. stay-at-home stocks gained after a new lockdown was announced to rein in the spread of COVID-19. Most stores will be closed in Germany from Wednesday until at least Jan. 10, Chancellor Angela Merkel said on Sunday, cutting short the busy Christmas shopping season. in online fashion retailer Zalando ZALG.DE and food delivery firm Delivery Hero DHER.DE surged 6.7% and 4.7%, respectively. The blue-chip DAX index .GDAXI was up 0.8%, logging its best session in three weeks.
"In the short term (the lockdown) will be a blow to activity and confidence even if the damage will be limited by knowledge of the imminent vaccine roll-out," said strategists at Deutsche Bank (DE:DBKGn) (DB) led by Jim Reid.