June 17 (Reuters) - French stocks and the euro tumbled

last week as political uncertainty in France and the possibility

of a far-right-dominated parliament spooked investors, while the

gap between French and German government borrowing costs soared.

Marine Le Pen's eurosceptic National Rally is leading in

opinion polls following President Emmanuel Macron's surprise

decision to call a snap vote, while France's left-wing parties

have formed a new alliance to fight the election.

The worry for markets is that a far-right French prime

minister could pursue high-spending "France first" economic

policies, adding to the country's large debt pile. Some

investors have started to talk of the risk of the euro zone

breaking up, although that remains a way off.

Here are four charts showing how markets have been reacting.

French stocks have sold off hard. The blue-chip CAC 40 is at

its lowest since January, having shed 6% last week - its biggest

weekly drop in over two years.

"There's an element of 'shoot first, ask questions later'

with regards to France," said Tom O'Hara, a portfolio manager on

the European equities team at Janus Henderson Investors.

"We're focused on global companies that are listed in

Europe. Certainly, those that are more domestically exposed,

there are going be more question marks about."

Midcaps, which typically have more exposure to the

underlying national economy, fell 9%, the biggest weekly drop

since March 2020's pandemic turmoil.

Banks have been particularly hard hit. BNP Paribas

, Credit Agricole and Societe Generale

all lost over 10% last week, losing roughly $19

billion in market cap since the previous Friday's close, based

on LSEG data.

French government bonds are also under pressure.

The difference between French and German 10-year borrowing

costs rose to 78 basis points on Friday, the

highest since 2017 on an intraday basis and on track for a

closing level not seen since the euro zone crisis of 2012.

The spread reflects the premium investors demand to hold

French government bonds rather than German bonds, the euro zone

benchmark.

The wider spreads could provide a "tactical buying

opportunity," said analysts at UBS, "but we expect investors to

take a wait-and-see attitude until there is more clarity on

electoral alliances, as well as fiscal policies in the case of a

cohabitation - a situation where the prime minister and

president are from different parties."

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

.

Spreads are also widening due to a general rush for safe

haven assets in Europe and that includes German government

bonds. The yield on German Bunds dropped 24 bps last week, its

biggest weekly drop since December.

"It is going to be a long month for the euro," said Chris

Turner, global head of markets at ING.

The currency has dropped 1% against the dollar, British

pound and Swiss franc last week alone, and is at its lowest

against the pound in almost two years.

Markets are braced for further sharp moves. One-month

options volatility for the euro against both the dollar and the

pound has jumped to its highest in over a year.

"With opinion polls taking such a toll on the euro and

presumably more polls due..., we expect investors will want to

manage their euro exposure carefully," said Turner, who reckons

the euro could drop towards $1.06 this week, which would be its

lowest since November. It's currently at $1.070.

The cost of insuring France's debt against default has also

rocketed.

France's five-year credit default swap widened to 38 basis

points (bps) on Friday, having been just 24 bps as of market

close on June 7, a week before.

These levels are the highest since the pandemic, and prior

to that, since the 2017 presidential election, when markets

feared Le Pen might be elected France's president.