* Paris stock market underperforms after S&P downgrade
* FTSEurofirst 300 index edges lower
* Many investors still optimistic over 2014
* Barclays sees 27 pct return on STOXX 600 in 2014
LONDON, Nov 8 (Reuters) - European shares edged lower on Friday, with France underperforming after a rating downgrade, although many investors felt increasing signs of a world economic recovery would support equities in the longer term.
The pan-European FTSEurofirst 300 index, which had risen to a 5-year high of 1,316.42 points on Thursday, had fallen by 0.1 percent to 1,295.82 points in late session trading.
France's CAC-40 equity index was one of the worst-performing European markets, falling 0.4 percent after credit rating agency Standard & Poor's (S&P) cut its rating on France by one notch to AA from AA+.
The decline on the French market meant European equities underperformed gains elsewhere in the UK and United States.
Andrew Arbuthnott, head of large cap European equities at Pioneer Investments, said the France downgrade and the European Central Bank's decision to cut rates on Thursday showed lingering concerns over the euro zone's economy, which is still dealing with the effects of a sovereign debt crisis.
By contrast, U.S. jobs growth unexpectedly accelerated in October - although this heightened the prospect that the U.S. Federal Reserve will curtail or "taper" a bond-buying program aimed at helping the economy earlier than expected.
"Despite rallying initially after the ECB rate cut, markets appear a little cautious today as the more dovish rhetoric of the ECB has prompted concerns over the recovery in growth in the euro zone," said Arbuthnott.
OPTIMISM FOR 2014
Nevertheless, Arbuthnott and others were upbeat on prospects for equities in 2014.
Barclays equity strategists felt an acceleration in corporate earnings growth would contribute to a 27 percent return for the pan-European STOXX 600 index in 2014. The STOXX 600 is up by around 15 percent since the start of 2013, while the FTSEurofirst is up by 14 percent.
German investment bank MM Warburg also felt the country's DAX equity index, which has already hit record highs this year, was on track to hit the 10,000 point level. The DAX was down by 0.5 percent at 9,039.04 points on Friday.
"We remain quite positive believing the ECB has confirmed their willingness to 'do what it takes' to promote growth in the euro zone," said Arbuthnott.
"We believe 2014 will see an increase in profitability across the region and this should translate into positive performance for European equity investors," he added.
Scott Meech, co-head of pan-European equities at Union Bancaire Privee (UBP), said that in the coming weeks, equity markets might slip back from recent highs as people sell out to cash in on the rally, before buying back in December.
"People are probably looking to take some risk off the table at the moment after a good run," he said.