July 1 (Reuters) - The risk premium for French sovereign

debt dropped on Monday, after the first round of general

elections in France confirmed the rise of the far-right National

Rally (RN) party and the erosion of support for President

Emmanuel Macron's centrist bloc.

Analysts said a hung parliament remained the base case,

loosely in line with market expectations.

Investors feared that a new government could increase fiscal

spending, threatening the sustainability of the country's public

debt but hoped the RN party would implement just part of its

fiscal pledges.

"Given the division in the French parliament we find it

unlikely that the new government can find support for any larger

increases in spending," said Rune Thyge Johansen, euro area

economist at Danske Bank.

The exit polls aligned with opinion surveys ahead of the

election and provided little clarity on whether the eurosceptic

RN can form a government to "cohabit" with the pro-EU Macron

after next Sunday's run-off.

The yield spread between French and German 10-year sovereign

bond yields -- a gauge of the premium investors

demand for the extra risk of holding French bonds - tightened to

73 bps after hitting its highest since 2012 at 85 bps on Friday.

It was below 50 bps before Macron's surprise decision on

June 9 to call a snap election.

The RN's chances of winning power next week will depend on

the political deal-making made by its rivals over the coming

days.