* FTSEurofirst 300 down 0.2 pct, Euro STOXX 50 down 0.3 pct
* FTSEurofirst hits 16-month high during session
* Index shake-up talk hurts France Tel, boosts Richemont
* Volatility index hits 5-year low for second day in a row
* U.S.-based European equity funds see further inflows
By Blaise Robinson
PARIS, Nov 30 (Reuters) - European stocks ended slightly down on Friday while posting solid monthly gains, as investors bet the worst of Europe's debt crisis is over and that a U.S. budget deal will be reached before the year-end.
The FTSEurofirst 300 index of top European shares ended 0.2 percent lower at 1,119.36 points, after touching its highest level since July 2011 earlier in the session.
The euro zone's blue-chip Euro STOXX 50 index dipped 0.3 percent, closing at 2,575.25 after hitting its highest level in 2-1/2 months.
The two benchmarks, up 2.2 percent and 2.9 percent respectively in November, enjoyed their sixth straight monthly gain - their longest run of successive monthly gains in eight years.
"There's been a strong reversal in sentiment," said Marc Renaud, chief executive officer of Mandarine Gestion, which has 1.45 billion euros ($1.89 billion) in assets under management.
"The market is in a classical phase of risk-premium reduction. Now what we need is a pick-up in macro data to really start a long-term bullish trend."
Shares in LVMH, the world's biggest luxury goods maker, was the top blue-chip performer, up 1.3 percent after Goldman Sachs upgraded its recommendation on the stock to 'buy', forecasting an improvement in demand from China.
Shares in France Telecom fell 1.2 percent while shares in luxury group Richemont gained 1.7 percent as speculation swirled of an imminent shake-up of the STOXX Europe 50, the pan-European blue-chip index.
"Using 30 November intraday prices and updated provisional floats, Richemont could be a fast add in the STOXX Europe 50 and could replace France Telecom," Societe Generale index analyst John Carson wrote in a note.
Shares in Spanish rescued banks Bankia and Banco de Valencia sank around 25 percent, ahead of the share issues set to take place once the lenders are recapitalised with European funds.
"There is a negative market sentiment towards the nationalised lenders because the restructuring process will have negative consequences for shareholders and holders of hybrid debt and preference shares," said Soledad Pellon, analyst at Madrid-based brokerage IG.
Around Europe, UK's FTSE 100 index dipped 0.06 percent, Germany's DAX index gained 0.06 percent, and France's CAC 40 lost 0.3 percent.
"We're now seeing inflows into equities, albeit still modest, and the volatility has tumbled to levels not seen since the start of the financial crisis. We can finally do our job as stock pickers," Madarine Gestion's Renaud said.
The Euro STOXX 50 Volatility Index, or VSTOXX, Europe's widely-used measure of investor risk aversion, hit a 5-year low on Friday for a second day in a row, a strong signal of investors' growing appetite for European equities.
The VSTOXX, based on put and call options on Euro STOXX 50 stocks, fell to 16.26, a level not seen since mid-2007, at the very beginning of the U.S. subprime crisis which dragged the world into its worst economic crisis since the Great Depression.
Bold measures unveiled over the past year by the European Central Bank to resolve the debt crisis have soothed systemic fears, and the Euro STOXX 50 has jumped about 25 percent in the past six months, strongly outperforming U.S. stock indexes.
Europe's 'catch up rally' started in late July, tightening the gap between price-to-earnings ratios of U.S. and European stocks, and earlier this month the gap shrank to its lowest level since 2006.
Recent fund flow data has also signalled that investors are starting to dip their toes back into battered euro zone assets after shunning them in the past few years.
EPFR Global data showed on Friday that fresh money went into Europe equity funds during the week ended Nov. 28, with U.S.-domiciled Europe equity funds enjoying inflows for the 16th straight week.