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Left wing bloc projected to get most seats

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Macron's pro-market reforms likely to come under pressure

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Investors apprehensive as policy outlook remains uncertain

(Updates with details of exit poll, analyst comments and chart)

By Harry Robertson and Dhara Ranasinghe

LONDON, July 7 (Reuters) - The euro slipped on Sunday

after projections from France's election pointed to a hung

parliament and an unexpectedly strong showing for the left-wing

New Popular Front, casting fresh uncertainty over markets and

setting the stage for further volatility ahead.

Analysts said markets would likely be relieved that Marine

Le Pen's far-right National Rally (RN) was forecast to come

third after last week's first-round victory.

Yet investors also have concerns that the French left's

plans could unwind many of President Emmanuel Macron's

pro-market reforms. And they believe political gridlock could

end attempts to rein in France's debt, which stood at 110.6% of

gross domestic product (GDP) in 2023.

The euro fell 0.2% to $1.081 as the week's trading

got underway. It had climbed last week as opinion polls

suggested a hung parliament was likely, assuaging fears of a far

right victory, after dropping sharply - along with stocks and

bonds - when Macron called the elections in early June.

"It looks like the anti-far right parties really got a lot

of support," said Simon Harvey, head of FX analysis at Monex

Europe.

"But fundamentally from a market perspective, there's no

difference in terms of the outcome. There's really going to be a

vacuum when it comes to France's legislative ability."

Harvey added: "The bond market is going to be the real place

to look at. There might be a bit of a gap lower in French bonds

(prices)."

Trading in French bonds and stocks will begin on Monday

morning in Europe.

The leftist alliance, which gathers the hard left, the

Socialists and Greens, was forecast to win between 172 and 215

seats out of 577, according to pollsters' projections based on

early results from a sample of polling stations.

Macron's centrist alliance was projected to win 150-180

seats, with the RN seen getting 115 to 155 seats.

Analysts said a period of volatility and uncertainty was

expected to continue as investors now assess what form the

parliament will take, and how many, if any, of its policies the

leftist alliance will be able to implement.

The New Popular Front alliance says its first moves would

include a 10% civil servant pay hike, providing free school

lunches, supplies and transport while raising housing subsidies

by 10%.

"The economic programme of the left is in many ways much

more problematic than that of the right, and while the left will

not be able to govern on their own, the outlook for French

public finances deteriorates further with these results," said

Nordea chief market analyst Jan von Gerich.

JITTERY MARKETS

Markets tumbled after Macron gambled in June by calling a

parliamentary election following a trouncing at the hands of the

RN in European Parliament elections - as investors worried an RN

victory could install a prime minister intent on a

high-spending, France-first agenda that would exacerbate a large

debt pile and shake relations with Europe.

The risk premium investors demand to hold the country's debt

soared to its highest level since the euro zone crisis in 2012.

French stocks, led by banks, dropped as investors worried about

their holdings of government debt, new regulation and economic

uncertainty in the euro area's second biggest economy.

Yet equities, bonds and the euro all recovered somewhat last

week as polls showed a hung parliament was the most likely

outcome as the left wing and centrist parties struck deals to

give anti-RN candidates a better chance.

The exact make-up of the next parliament remains uncertain,

as does the next prime minister. Gabriel Attal said he would

hand his resignation to Macron on Monday.

"It's going to be very hard to actually go ahead and pass

any policy and bring about any progressive reforms because each

party's vote is split and no one has an absolute majority," said

Aneeka Gupta, director of macroeconomic research at WisdomTree.

Yet she added: "I think the markets will be happy we're

avoiding this extreme situation with the far right."