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Left wing bloc set 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 prices, adding bond market futures and latest results.

Changes dateline to July 8)

By Harry Robertson and Dhara Ranasinghe

LONDON, July 8 (Reuters) - The euro slipped and French

bond futures fell after French elections pointed to a hung

parliament, casting fresh uncertainty over markets as a period

of gridlock looms.

The euro dropped around 0.2% in Asia trade to

$1.0819 and long-term French bond futures dipped 20

ticks for an implied yield of 3.13%.

Analysts said markets would likely be relieved that Marine

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

third, instead of winning the second-round ballot as had been

predicted by opinion polls.

Yet investors also have concerns that the left's plans could

unwind many of President Emmanuel Macron's pro-market reforms

and believe a gridlock could end attempts to rein in France's

debt, which stood at 110.6% of gross domestic product in 2023.

"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."

Cash trading in French bonds and stocks will begin on Monday

morning in Europe. Moves in broader financial markets were

modest.

The election leaves France's 577-seat assembly divided in

three big groups - the left, centrists, and the far right - with

hugely different platforms and no tradition at all of working

together.

Polling agencies, which are generally accurate, forecast the

left would get 184-198 seats, Macron's centrist alliance 160-169

and the RN and its allies 135-143. Constituency results were

trickling in, with most due by the early hours of Monday.

JITTERS

Markets had tumbled when Macron in a shock move in June

called for parliamentary elections following a trouncing at the

hands of the RN in European Parliament elections.

French stocks, led by banks, dropped as investors worried

about their holdings of government debt, new regulation and

economic uncertainty in the euro zone's second biggest economy.

While the prospect of a far-right prime minister has dimmed

and there has been some market rebound, the left has some

expensive proposals and is also likely to shake up relations

with Europe, leaving the outlook for French assets bumpy.

The leftist New Popular Front alliance, which wishes to

govern, 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's chief market analyst, Jan von Gerich.

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

has touched its highest level since the euro zone crisis in 2012

as the country headed for the polls and even though there has

been some recovery, a period of volatility is likely ahead.

"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."