Left's revival tempers Sarkozy's poll win

PARIS (Reuters) - French President Nicolas Sarkozy's allies won a large majority in parliamentary elections on Sunday but fell short of the predicted landslide after a row over a sales tax hike appeared to cost them votes.

Government No. 2 Alain Juppe was the biggest casualty of a late Socialist surge, and confirmed he would resign his powerful energy and environment ministry on Monday after losing in his Bordeaux fiefdom.

Prime Minister Francois Fillon had said any minister who failed to win his seat would have to quit, and the loss of the government's de facto deputy prime minister a month after his appointment soured the right's victory.

And on a night of surprises Segolene Royal, the left's defeated presidential candidate, said she and Socialist Party chief Francois Hollande would make a statement on Monday about media reports they are to separate. They have four children.

Pollster Ipsos-Dell projected Sarkozy's centre-right allies would win about 340 seats in the National Assembly, well below the 470 seats predicted in some pre-poll estimates.

The CSA institute projected 232 Socialists, Communists and Greens would face them in the 577-seat legislature.

The surprise results were a relative setback for Sarkozy but the new president will still have the legislative muscle to push ahead with his sweeping tax and labor reforms. It was the first time a party has been re-elected since 1978.

"Your participation has resulted in a clear and coherent choice, which will allow the President of the Republic to implement his project," Prime Minister Francois Fillon, speaking from his official Matignon residence, said of the results.

"My dear compatriots, the time of elections are over, the time to unite has arrived, the time for action has begun."

SARKOZY'S NEXT MOVE

Sarkozy's Union for a Popular Movement (UMP) and allies had 359 seats in the outgoing legislature, compared to 149 for the Socialists and their affiliates.

Hollande said voters had heeded the left's warning that a conservative landslide would give Sarkozy unfettered control of the levers of power.

"They also wanted to express doubts and fears concerning the first unfair measures of the government of Francois Fillon, notably the announcement of the 'Social VAT'," Hollande said of the value-added tax.

The run-off ballots confirmed the two big parties had squeezed the smaller groups. The centrist Democratic Movement of Francois Bayrou was projected to win 5 seats, a disappointment after bagging 18.5 percent of votes in presidential elections.

The Communists were seeking to save 18 of their 21 seats, the Greens were seen increasing their number to four while the far-right National Front failed to win a seat.

Sarkozy, who kept a low profile in the campaign, was expected to complete his governing team quickly after the vote, the fourth election in France in two months. Voter fatigue explained a high abstention rate of around 40 percent.

The president could this week appoint about half a dozen junior ministers, including ethnic minority figures, non-UMP politicians and maintain ministerial parity between the sexes.

He will call a special session of the new parliament for June 26 to vote through tax breaks on mortgage interest repayments and overtime, a 50 percent cap on personal taxation, tighter immigration laws and stiffer terms for repeat offenders.

INTERNAL FEUDING

But it was the government's bungled proposal to consider raising sales tax by up to 5 percentage points as a means of lowering employers' social security contributions that seemed to have cost the conservatives a bigger majority.

The left seized on the unpopular announcement, denouncing an unfair tax that would stifle consumer demand and hurt the economy. Sarkozy had to intervene to play down talk of a hike.

However, within hours of the result becoming clear, it emerged Royal and Hollande, the "power couple" of the French left, were to end their long-term union.

The news heralded a fresh bout of feuding within the party, with the weakened Hollande under heavy pressure to bow out after the left's latest election defeat and Royal clearly maneuvering to take over the party leadership.

(Additional reporting by James Mackenzie, Kerstin Gehmlich, Crispian Balmer and Anna Willard)