* Angry Sarkozy accused Socialist rival of lying in debate
* Debate seen as conservative leader’s last hope of catching up
* Hollande leads runoff polls, Le Pen won’t endorse Sarkozy (Releads with Bayrou announcement)
By Catherine Bremer and Daniel Flynn
PARIS, May 3 (Reuters) - Nicolas Sarkozy’s fragile hopes of re-election took a heavy blow on Thursday when a leading centrist backed Socialist frontrunner Francois Hollande, a day after the French president failed to land a knockout blow on his rival in a televised debate.
Opinion polls after Wednesday’s nearly three-hour duel, watched by over a third of the 46 million-strong electorate, showed Sarkozy narrowing Hollande’s lead slightly before Sunday’s runoff for the presidency, but failing to discredit his rival in the eyes of most voters.
Sarkozy’s prospects suffered another setback when centrist Francois Bayrou, who came fifth in last month’s first round with 9 percent of the vote, announced he would vote for Hollande, criticising the president’s tough language on immigration and Europe.
“The line that Nicolas Sarkozy chose between the two rounds is violent, it contradicts our values, not just mine, not those of the movement I represent,” Bayrou told a news conference.
Seeking to save his political skin, Sarkozy has appealed to the nearly one-fifth of voters who backed far-right candidate Marine Le Pen in round one, warning them against following the National Front leader who said she would cast a blank vote.
He also implored voters not to elect what would be the first left-wing French president in 17 years.
“The Left has ruined the Republic with its softness on sectarianism, on crime, on legal immigration,” Sarkozy said at a rally in the southern city of Toulon. “We have one day left to convince people, one day for the sweetest victory in history.”
To stay in office, Sarkozy needs to accomplish a near-impossible balancing act of winning over about 80 percent of Le Pen’s voters while attracting the lion’s share of Bayrou’s more moderate, socially-liberal supporters.
So far, he has tried to woo backers of Bayrou’s Democratic Movement with promises to write a balanced budget rule into the constitution, something Hollande has refused to support.
An OpinionWay-Fiducial survey conducted before and after the TV debate showed Sarkozy narrowing the gap to five points, with 47.5 percent to the Socialist’s 52.5 percent, the smallest gap so far. Other recent polls give a six to 10 point difference.
A survey by LH2 found Hollande, who remained calm in the debate against a visibly tense Sarkozy, dispelled some voters’ doubts about his lack of experience, with 45 percent rating him as more convincing versus 41 percent for Sarkozy.
“Sarkozy was the favourite for the debate and he failed to win: Hollande took it on points,” said Christian Delporte, a political and media analyst. “Hollande had a real challenge - to show that he was presidential material - and he managed it.”
French media mostly agreed that Hollande, who used flashes of wit to unbalance his pugnacious rival, remains on track to become France’s first Socialist president since Francois Mitterrand left office in 1995.
“Hollande still favourite after the debate,” Le Monde wrote on its front page. Even right-wing Le Figaro newspaper noted that, since every euro zone leader to seek re-election since 2008 had lost, Sarkozy faced an uphill battle.
Hollande, 57, was confident and relaxed in the early exchanges of Wednesday’s contest, promising to be “the president of unity” and accusing Sarkozy of dividing the French people.
He accused Sarkozy, also 57, of using the global economic crisis as an excuse for failing to keep a 2007 promise to cut unemployment to 5 percent. “With you it’s very simple: it’s never your fault,” Hollande said.
Sarkozy, stressing the inexperience of a rival who has never been a minister, repeatedly accused his opponent of lying about economic figures and reeled off reams of statistics in an attempt to swamp his adversary.
Deriding Hollande’s pledge to be a “normal president”, Sarkozy said: “Your normality is not up to the challenge.”
Markets, however, appeared unworried by the prospect of a win by Hollande, who vows to raise taxes on large companies and increase marginal tax rates for top earners to 75 percent.
The yield on 10-year French bonds held steady below 3 percent at an auction on Thursday, while the Paris CAC stock index was slightly lower, in line with most of Europe.
Hollande has soothed investors’ concerns in recent weeks by moderating his call for the renegotiation of a German-inspired European budget discipline treaty, which many had feared would derail efforts to deal with the euro zone crisis. He said he would balance the French budget by 2017, just a year later than Sarkozy.
“Supposing Francois Hollande wins the election on Sunday, we do not expect a major policy shift with respect to the fiscal stance in France,” JP Morgan economist Raphael Brun-Aguerre said.
Europe was one of the main subjects of Wednesday’s debate, as well as the sickly economy, high unemployment, nuclear power and immigration.
“The example I want to follow is Germany and not Spain or Greece,” Sarkozy said, declaring that he and German Chancellor Angela Merkel had saved Greece from an economic wipeout and avoided the collapse of the euro currency.
“Europe has got over it,” Sarkozy said of the crisis.
Hollande, who says he wants to defend millions of Europeans at threat from government cutbacks, shot back: “Europe has not got over it. Europe is today facing a possible resurgence of the crisis with generalised austerity. That’s what I don’t want.”
Sarkozy, being punished in part for his brash manner, is the most unpopular president to run for re-election and the first in recent history to lose a first-round vote. (1 = 0.7603 euros) (Additional reporting by Paul Taylor, Alexandria Sage, John Irish, Pauline Mevel, Emmanuel Jarry and Elizabeth Pineau; Editing by Paul Taylor and David Stamp)