* Fed tapering talk may gain momentum if payroll data strong
* Euro steadies at 7-week low after ECB rate cut, French downgrade
* European shares fall towards first fall in 5 weeks
LONDON, Nov 8 (Reuters) - The dollar hovered off seven-week highs on Friday as markets positioned for their monthly dose of U.S. jobs data and reassessed the euro after the European Central Bank's surprise rate cut and a credit downgrade for France.
The euro steadied at $1.3420 after Standard & Poor's lowering early on Friday of France to AA from AA+ had pushed it overnight to its weakest level against the dollar in almost two months and against sterling since January.
Coming sooner than markets had anticipated, Thursday's ECB rate cut had delivered the initial punch to the single currency's midriff, and investors were wary of further market volatility if U.S. October non-farm payrolls due at 1330 GMT come in strong.
Economists polled by Reuters expect 125,000 jobs to have been added, although last month's 16-day U.S. government shutdown may affect the figures.
A high reading could revive bets the Federal Reserve will start scaling back its stimulus this year, especially after data on Thursday showed the U.S. economy grew far quicker that expected between July and September.
"I don't think the non-farm payrolls are going to have a sustained market reaction," said Chris Turner, head of foreign exchange strategy at ING. "People understand there are going to be some distortions after the government shutdown.
"Were the dollar to sell off I don't think it would last too long. We are listening to the ECB with great respect now with regards to lower rates," he added.
Expectations of a strong payrolls reading had driven down Asian share markets overnight after Wall Street suffered its worst day since August, and European bourses were flirting with their first weekly fall in five after a tough morning.
The pan-European FTSEurofirst 300 extended losses to be down 0.7 percent as London's FTSE and Frankfurt's DAX fell 0.5 and 0.6 percent, and Paris's CAC 40 lost 0.8 percent as the S&P downgrade weighed.
Futures prices pointed to a minor rebound on Wall Street but the S&P 500 and Dow Jones industrial average are both on course for weekly falls.
French government bonds were also hit by S&P's one-notch downgrade, although the ECB's cut in interest rates helped German Bunds keep hold of most of this week's gains.
"S&P's decision reflects the worries over French growth, and the sentiment that government action is not enough," said Philippe Waechter, head of economic research at Natixis Asset Management in Paris.
Data showing China's exports rose more than expected in October hardly eased investors' cautious mood, with the CSI300 index of leading Shanghai and Shenzhen A-share listings falling to two-month lows.
MSCI's world share index, which tracks 45 countries, fell 0.2 percent and looked set for a loss of 1 percent on the week, while Japan's Nikkei average dropped 0.9 percent. Both indexes hit their lowest levels in about four weeks.
The dollar had strengthened on the U.S. GDP data, with its index against a basket of major currencies hitting an eight-week high of 81.46 on Thursday. It last stood flat on the day at 80.85 .
The dollar's strength suppressed oil prices, with Brent crude hitting a four-month low of $103.22 a barrel. Plentiful crude supplies, progress in talks over Iran's disputed nuclear programme and a fall in China's crude imports all weighed.
U.S. Treasuries maintained gains made after the ECB's rate cut, with the 10-year bond yield standing at 2.6091 percent , near this week's low.