Sarkozy's win in French vote seen good for stocks

PARIS (Reuters) - The comfortable win by President Nicolas Sarkozy's allies in legislative polls on Sunday bodes well for France's financial markets as investors are banking on promised economic reforms being pushed through, analysts said.

Sarkozy's centre-right allies won a majority, pollsters projected after the voting ended, giving the new president leeway to implement wide-ranging market-friendly labour and tax reforms aimed at boosting growth and creating jobs.

The majority, however, was smaller than expected as talk of a increase in the value-added tax appeared to have cost the conservatives votes.

Still, Valerie Plagnol, chief strategist at CM-CIC Securities, said the proposed reforms will not be challenged.

"The market saw Sarkozy's election in May as an opening to more flexibility, to tax cuts and, more broadly, to a change in France's financial dynamic, something that was reflected in consumer confidence indexes in May," she said.

"Today's results confirm the expectations that surfaced after the presidential election. Now the parliament will have to move on with the reforms."

The widely expected election results might have a limited impact on French markets in the short term, as investors had expected a Sarkozy majority and some gains were already priced into French stocks.

But investors are eager to see sweeping changes to labour laws and other measures pledged by Sarkozy to make French business more competitive, said Oddo Securities strategist Pierre-Yves Gauthier.

"We have noticed a certain sensitivity by foreign investors about the elections and this is related to reforms that some analysts have said the new government could implement," he said.

REFORMS ON THE WAY

Prime Minister Francois Fillon said on Sunday the victory would allow Sarkozy to enact his reform program fully.

Fillon, as well as key government figures such as Economy Minister Jean-Louis Borloo and Labour Minister Xavier Bertrand, had won their legislature seats in the first round of voting the previous Sunday.

The government has unveiled a draft package of economic measures that it wants to put before a special session of parliament starting June 26.

Among them, the government wants to exempt overtime from income tax and social charges for employees and employers.

Sarkozy's electoral pledges also included measures to make interest on mortgages for main residences tax deductible, and a push to allow stores to open on Sundays, moves that could boost the construction and retail sectors.

It also wants to lower the cap on personal taxation, and to allow individuals subject to the wealth tax to invest up to 50,000 euros ($67,120) in small- and medium-sized firms and be credited with an equivalent amount against the tax they owe.