LONDON (Reuters) - Hedge funds betting on a rise in banking shares abandoned trades last week at the fastest pace since May 2021, according to a June 28 Goldman Sachs ( GS ) note, meaning they missed the sector's rally on Monday after the first round in the French election.

Long positions or bets on a rise in prices of banking and other financial stocks were ditched among the highest rates in five years in the week to June 27, particularly in Europe, said the note which only went to clients.

European bank stocks rallied as much as 1.9% on Monday after Marine Le Pen's far-right National Rally (RN) party and its allies took a smaller lead than some expected in Sunday's first round, suggesting a hung parliament could result and hamper the party's agenda.

French assets had been pummelled in the lead-up to the surprise election, as the prospect of either the far right, or far left, gaining a majority raised the risk of a swell of spending that could undermine the government's fragile finances.

Shares on Monday in the country's three largest lenders, BNP Paribas, Credit Agricole and Societe Generale rose between 4.1% and 4.7%, while the cost of insuring their bonds against default fell to its lowest in two weeks.

Financial stocks were also sold elsewhere, in every region apart from developing markets Asia in the week to June 27 and were led, in notional terms, by Europe, the note said.

A modest amount of hedge funds bought financials in order to exit short positions, said Goldman Sachs ( GS ), without revealing the exact number.

A short position is the opposite to a long trade, with the investor anticipating a stock to fall in price so that it can buy it back at a cheaper price.

Stock sectors that hedge funds sold out of included capital markets companies, banks, consumer finance and insurance, said the bank.

Trading companies and those which package up mortgages to be publicly traded saw modest buying, said Goldman.