* 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
By Sudip Kar-Gupta
LONDON, Nov 8 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
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.