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* FTSEurofirst 300 down 0.6 percent
* Many markets closed on Monday, others half-day
* U.S. fiscal talks to resume on Sunday
* Demand for downside protection building
* Fear gauge at five-month highs
By David Brett
LONDON, Dec 28 (Reuters) - European shares ended the last full trading session of 2012 lower as wavering expectations about the outcome of the U.S. budget crisis left overbought indexes vulnerable to profit taking.
The FTSEurofirst 300 closed down 7.04 points, or 0.6 percent, at 1,130.56 on Friday. The Euro STOXX 50 , whose 14-day relative strength index (RSI) - a widely-used technical momentum indicator - is in 'overbought' territory, fell 1.2 percent.
With markets in Austria, Denmark, Finland, Germany, Italy, Norway, Sweden, and Switzerland now closed for 2012, and any U.S. deal to avoid massive tax hikes and spending cuts still looking some way off, Friday was the last chance for investors to book profits on bumper gains seen over the last six months.
"It is no surprise the politicians are leaving it late but while there is uncertainty the smart move is to reduce risk and take downside protection," a London-based trader said.
The drawnout negotiations in the United States has contributed to the Euro STOXX 50 posting its first weekly loss in six weeks, but the index is still near 17-month highs.
While cash markets do not appear to fully reflect U.S. risks, investors are snapping up downside protection on equities in the final trading days of 2012, taking the put/call ratio on EuroSTOXX 50 to its highest level in a year.
"Global equity markets are remarkably robust. Given that the market does not appear to have priced in failure (in the United States to agree a deal), it does suggest that investor optimism may be misplaced," Rebecca O'Keeffe, Head of Investment at Interactive Investor, said.
FEAR LEVELS RISING
There were signs elsewhere of worry building with volatility - a crude gauge of investor fear - near five-month highs, and euro zone cash market index volumes in December on track to be the quietest month in six years, according to Thomson Reuters Eikon data.
Congress is set to reconvene in the United States on Sunday but all the evidence of the past fortnight suggests that Republicans and Democrats are as far apart as ever.
Every sector on the Stoxx 600 ended in the red with falls led by financials .
Still, the FTSEurofirst 300 is set to post a gain of 14 percent for 2012 while the euro zone's blue chip Euro STOXX 50 index has risen 15 percent.
Both indexes are enjoying their best annual performance since the sharp bounce of 2009 fueled by unparalleled support for the global economy by central banks and expectations that a U.S. deal will be struck.
European stocks have been helped too in recent weeks by an influx of investment from the United States, as investors have become more sanguine about the prospects for the euro zone and less relaxed about the U.S. crisis.
Standout gainer on Friday was Porsche whose shares rose 6.3 percent after it won a dismissal of a U.S. lawsuit by 26 hedge funds, one of several legal actions over its purchase of shares in Volkswagen, Europe's largest carmaker.
Euronext cash equity markets (France, Belgium, Netherlands, Portugal) as well as Madrid Stock Exchange trading will be closing at 1300 GMT on Monday. London's stock exchange will be closed from 1230 GMT.