(Updates at 0311 GMT)

By Ankur Banerjee

SINGAPORE, July 1 (Reuters) - Asian stocks were subdued

on Monday as traders pondered the U.S rates outlook, while the

euro rose after the first-round voting in France's shock snap

election was won by the far-right, albeit with a smaller share

than some polls had projected.

The shock vote has unsettled markets as the far-right, as

well as the left-wing alliance that came second on Sunday, have

pledged big spending increases at a time when France's high

budget deficit has prompted the EU to recommend disciplinary

steps.

On Monday, the euro was 0.32% higher, while

European stock futures rose 1% and French OAT bond

futures gained 0.15% as investors digested the better

than feared results, although uncertainty remained.

Exit polls showed Marine Le Pen's National Rally (RN)

winning around 34% of the vote, comfortably ahead of leftist and

centrist rivals but the chances of eurosceptic, anti-immigrant

RN winning power next week will depend on the political

dealmaking by its rivals over the coming days.

"Perhaps the result isn't as bad as the market had feared,"

said Michael Brown, senior strategist at Pepperstone.

"We've also seen a lot of rhetoric form other parties

looking to perhaps pull out candidates to try and avoid the

National Rally winning seats in the runoff next Sunday ... The

market may be taking a little bit of solace in that."

The focus now shifts to next Sunday's runoff and will depend

on how parties decide to join forces in each of the country's

577 constituencies for the second round, and could still result

in a majority for RN.

"Investors are concerned that if the far-right National

Rally party wins a majority in the French Parliament, this could

set the stage for France to clash with the EU, which could

disrupt Europe's markets and the euro sharply," said Vasu Menon,

managing director of investment strategy at OCBC.

In Asia, the MSCI's broadest index of Asia-Pacific shares

outside Japan was 0.07% higher, to kick off the

second half of the year having risen 7% so far in 2024. Japan's

Nikkei rose 0.57%.

China stocks eased, with blue-stocks down 0.45%.

Hong Kong's Hang Seng Index was flat.

A private sector survey on Mondayshowed China's

manufacturing activity grew at the fastest pace in more than

three years due to production gains, even as demand growth

slowed.

The Caixin/S&P Global manufacturing PMI data contrasted with

an official PMI released on Sunday that showed a decline in

manufacturing activity.

On the macro side, the spotlight remains on if and when the

Federal Reserve will start cutting rates in the wake of data on

Friday showing U.S. monthly inflation was unchanged in May.

In the 12 months through May, the PCE price index increased

2.6% after advancing 2.7% in April. Last month's inflation

readings were in line with economists' expectations. They remain

above the Fed's 2% target for inflation.

Still, markets are clinging to expectations of at least two

rate cuts from the Fed this year with a cut in September pegged

in at 63% probability, CME FedWatch tool showed.

U.S. stocks on Friday ended lower after an early rally

fizzled.

Among currencies, the yen traded around 160.98 per

dollar after the government, in a rare unscheduled revision to

gross domestic product (GDP) data on Monday, said Japan's

economy shrank more than initially reported in the first

quarter.

Data also showed Japan's factory activity stayed unchanged

in June amid lacklustre demand and as companies struggled with

rising costs due to the weak yen.

The yen skidded to 161.27 on Friday, its weakest level since

late 1986, keeping traders on edge as they look for signs of

intervention from Japanese authorities.

The euro touched a more than two week high of $1.076175 in

early Asian hours, pushing the dollar index, which

measures the U.S. unit against six rivals, a touch lower at

105.59.

In commodities, oil prices edged higher, with Brent futures

0.39% higher at $85.33 per barrel and U.S. West Texas

Intermediate crude futures up 0.42% at $81.88.

(Editing by Stephen Coates)