* FTSEurofirst 300 ends 0.2 percent higher
* Pan-European index closes off 17-month high
* Euro STOXX 50 fails to breach 2,600 resistance
By Atul Prakash
LONDON, Dec 3 (Reuters) - European shares hit a 17-month high but gave up most gains in a late sell-off on Monday after disappointing U.S. manufacturing data and on persistent concerns about the fiscal standoff in the United States.
Stocks may stay choppy until the New Year as volumes usually fall late in the year, while negotiations on the U.S. "fiscal cliff" of spending cuts and tax rises from January are set to intensify.
But analysts said the medium- to longer-term outlook for equities remained positive and further gains were likely next year.
"There are signs that the global economy is consolidating. China is stabilising and Europe's fiscal problems seem not as bad as they appeared earlier. But the main immediate concern is the U.S. fiscal cliff. I am cautiously optimistic," said Christian Stocker, equity strategist at UniCredit in Munich.
A survey showed U.S. manufacturing unexpectedly contracted in November, showing its softest reading since July 2009, in the wake of superstorm Sandy that hit the U.S east coast in late October.
"I am not too concerned about the U.S. manufacturing data, which might have been influenced by the storm. Other recent U.S. indicators have shown that the economy is recovering," Stocker said.
The U.S. report came after purchasing managers indexes (PMIs) suggested China was regaining its vigour going into 2013, while the fall among the euro zone's embattled factories eased in November.
The FTSEurofirst 300 index hit a 17-month high of 1,128.65 points in the morning session before closing well below its intraday high.
The index, which finished 0.2 percent higher at 1,121.15 points, is still up 12 percent so far this year and has surged 18 percent since a multi-month low in June, partly on recent encouraging global economic data.
The euro zone's blue chip Euro STOXX 50 index ended 0.3 percent higher at 2,582.36 points after failing to stay above key resistance at 2,600 - its September high.
"The index looks toppish and further short-term pullbacks are possible," Roelof-Jan van den Akker, senior technical analyst at ING Commercial Banking, said.
"Within the index's 50-day moving average (of 2,510) and last week's gap between 2,549 and 2,559, you should expect the development of a higher bottom from where the next rally to break the strong resistance at 2,600 could start."
Analysts said the market had potential to scale new highs as sentiment had improved, economic indicators were stabilising and equities were still cheaper.
A Reuters poll showed that global investors raised their equity overweight positions to a 20-month high last month, while EPFR Global data showed equity funds across the world recorded inflows of $14.86 billion in the week ending Nov. 28, their second highest total year-to-date.
Nomura predicted double-digit returns on European equities in 2013 on improved global growth and attractive valuations.
According to Thomson Reuters Datastream, the broad STOXX 600 is trading at 11 times its 12-month forward earnings, while Wall Street's S&P 500 trades at 12.5 times, well below their 10-year average of 12.3 and 14.2 respectively.
Goldman Sachs' asset allocation team said in a note that improved earnings and returns relative to other assets made global equity markets attractive and justified an upgrade to "overweight" from "neutral" on a three-month view, although sluggish growth in Europe made it relatively less attractive.
Analysts said the situation in Europe was improving and the concern of a euro zone breakup had greatly diminished. There were signs of progress made by Greece in making its debt sustainable, while Spain made a formal request for bank bailout funds from the European Union.
"The formal request is nothing of a surprise of course given the fact the country had already informally requested bailout funds for its banks. My hunch is the formal request provides further clarity and this could be well received by investors," Joshua Raymond, chief market strategist at City Index, said.
Among individual movers, Mediaset rose 6.7 percent on the back of short-covering, as speculation over a possible partnership involving Italy's largest commercial broadcaster continued, according to Milan-based traders.