The Citigroup Inc (Citi) logo is seen at the SIBOS banking and financial conference in Toronto, Ontario, Canada October 19, 2017. REUTERS/Chris Helgren

Dec 5 (Reuters) - Citigroup on Friday set its 2026 year-end target for the STOXX 600 index at 640, broadly driven by fiscal spending and supportive monetary policy.

The Wall Street brokerage's target implies a 10.5% upside to the pan-European index's last close on Thursday.

The benchmark has risen 14% this year, thanks to Germany's fiscal spending plans and interest rate cuts by the European Central Bank, but still trails behind the S&P 500 index's about 16.6% gain.

"We remain constructive on European equities. It should be supported by fiscal spend and lagged impacts of monetary easing," Citigroup analysts said in a note.

The brokerage expects the earnings-per-share (EPS) growth to improve after a flat 2025 due to tariffs and forex headwinds.

"Both headwinds are easing," Citi said as it forecast a more than 8% EPS growth for next year.

Citi said it has a "tilt" towards cyclical sectors, including banks, travel and leisure, basic resources and industrials.

It upgraded both basic resources and industrials to "overweight" from "neutral", and downgraded the European tech sector to "neutral" from "overweight", citing valuations.

(Reporting by Rashika Singh in Bengaluru; Editing by Mrigank Dhaniwala and Subhranshu Sahu)