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

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

euro edged higher after the far-right won a smaller share of the

vote in the first round of France's shock snap election than

some polls had projected.

The euro was 0.32% higher at $1.0747, while

European stock futures rose 1% as exit polls showed

Marine Le Pen's eurosceptic National Rally emerged ahead in the

first round of the French vote but with fewer votes than some

analysts had forecast.

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.

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

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, leaving investors still

uncertain and jittery.

"With this result, markets are looking into another week of

really high uncertainty. Probably fear, as it is still possible

for RN to gain an absolute majority next week," said Carsten

Brzeski, global head of macro at ING in Frankfurt.

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

outside Japan was 0.18% lower, to kick off the

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

Nikkei rose 0.57%.

Meanwhile, China's manufacturing activity fell for a second

month in June while services activity slipped to a five-month

low, an official survey showed on Sunday, keeping alive calls

for further stimulus as the economy struggles to get back on its

feet.

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 dollar index, which measures the U.S. unit

against six rivals, was last a touch lower at 105.65.

(Editing by Stephen Coates)