LONDON, June 14 (Reuters) - French markets endured

another brutal sell-off on Friday as political uncertainty

unleashed the biggest weekly jump in the premium investors

demand to hold French government debt since 2011 and bank stocks

tumbled.

France's Finance Minister Bruno Le Maire warned the euro

zone's second-biggest economy faced the risk of a financial

crisis if the far right were to win parliamentary elections in

the coming weeks.

Marine Le Pen's eurosceptic National Rally (RN), is leading

in opinion polls following President Emmanuel Macron's surprise

decision at the weekend to call a snap election.

Le Pen's party is calling for a lowering of the retirement

age, cuts in energy prices, increased public spending and a

protectionist "France first" economic policy approach.

French banks were hit hard. The country's biggest three -

BNP Paribas, Credit Agricole and Societe

Generale - have lost between 12-16% in value this

week, the most since the banking crisis of March 2023.

The premium investors demand to hold French government bonds

over euro zone benchmark Germany meanwhile rose to its highest

level since 2017 at nearly 80 basis points.

It was set for a rise of roughly 25 bps this week, the

biggest weekly increase since 2011, when the euro zone was the

throes of a sovereign debt crisis that led to multiple

government and bank bailouts worth trillions of dollars.

"It's really hard to ignore the parallels from the situation

of 2011-2012 in the sovereign debt crisis," Justin Onuekwusi,

chief investment officer at investment firm St. James's Place,

said.

"If you go back to that period, very similar themes --

elections, sovereign debt spreads, debt sustainability in focus

with no real sign of what's going to stop this momentum."

Stock-market volatility roared higher on Friday, rising by

the most in a day since last July. Reflecting the level

of nervousness, the cost of insuring the debt of BNP Paribas,

Societe Generale and Credit Agricole rose to its highest since

the start of the year, according to S&P Global Market

Intelligence.

Shares in Italian banks also took a dive, with UniCredit

down 4.7% and Intesa Sanpaolo down 3.6%, as

investors ditched the bigger euro zone banks, including

Germany's Commerzbank, down 5.5%.

French state-backed finance body SFIL postponed a bond sale

on Friday, a lead manager memo seen by Reuters, in a sign of how

market unease was rippling out.

The CAC 40 was last down over 2%, heading for a

weekly loss of nearly 6%, its largest since early 2022, and

underperforming the regional STOXX 600 index, down just

1.8% for the week.

A decision by France's left wing parties to form a 'Popular

Front' added to selling pressure as it dents Macron's chances

emerging victorious in the election, analysts said.

The euro touched a one-month low at around $1.0690 and was

last down 0.5%.

The possibility that the RN could win has compounded

investor concerns around France's fiscal discipline. The first

round of voting takes place on June 30.

France's debt to gross domestic product ratio is above 100%,

and its deficit is around 5%. Its credit rating was downgraded

last month by S&P Global.

It now costs the French government more to borrow money for

10 years than it does the Portuguese government for the first

time since at least 2005, according to LSEG Datastream

.

There is now also less than half a percentage point of

difference in the long-term borrowing costs of the French

government and those of Greece, the biggest casualty of the euro

zone debt crisis of 2011-2012. A year ago, that

number was closer to 80 basis points.

"In terms of positioning, fast money accounts have been

short France over the last few months. However, real money

accounts, institutional accounts and Asian real money are long

France," said Jefferies analyst Mohit Kumar.

"As these accounts seek to exit their positions or reduce

exposure, buyers are unlikely to step in given that elections

are just three weeks away."

(Additional reporting by Tassilo Hummel in Paris and Dhara

Ranasinghe and Harry Robertson in London; Editing by Dhara

Ranasinghe and Christina Fincher)