Sarkozy initial victory could buoy French market

PARIS (Reuters) - Conservative candidate Nicolas Sarkozy's leading position in the first round of French elections on Sunday could further buoy the Paris stock market, which has hit a 6-year high on the back of merger activity.

Analysts said investors in top blue-chip companies in France's benchmark CAC-40 stock market index would welcome an eventual victory for Sarkozy, whom they see as leaning towards free-market economics and labor reform.

"This is a great result for French business and the CAC," said David Buik of financial spread betting firm Cantor Index.

"France has a chance of dragging itself into the 21st century. The CAC should open up in positive territory on Monday provided Asia is on good terms with itself," he added.

Conservative Sarkozy finished first in the opening round of France's presidential elections and will meet Socialist rival Segolene Royal in a run-off on May 6, initial returns showed.

With 80 percent of ballots counted, Sarkozy had 30.7 percent of the vote, Royal was second on 25.2 percent and centrist Francois Bayrou was third on 18.4 percent.

Far-right leader Jean-Marie Le Pen, who stunned France and spooked financial markets by coming second in the 2002 election, looked set to finish a distant fourth on around 11 percent -- his lowest score in his last three attempts at the presidency.

An IPSOS opinion poll late on Sunday suggested Sarkozy would win 54 percent in the second round, beating Royal.

Sarkozy has pledged to reform France's 35-hour working week law and usher in some tax cuts to revive a sluggish French economy that has been dogged by high unemployment.

"Sarkozy, who is the most market-friendly candidate, seems to have the best chance of winning," said Michel Martinez at SG Asset Management.

The euro was a shade firmer at $1.3601/04 as Monday trading started in New Zealand, up from $1.3594 in New York on Friday.

M&A MORE IMPORTANT THAN ELECTION?

Other investors pointed out, however, that the election was not as important a factor for the CAC-40 as a flurry of takeover activity that has led European stock markets to a 6-year high.

"There are far more important elements to consider than the election results, such as the wave of merger and acquisition activity," said Francois Chaulet, fund manager at Paris-based Montsegur Finance.

SG Asset Management's Martinez also cautioned that since the first round results were in line with forecasts, their impact on the CAC-40 might be muted.

The CAC-40 has risen around 7 percent since the start of 2007, spurred by merger and acquisition activity.

Both left-wing and right-wing French governments are generally keen to keep the country's top companies in domestic ownership, but foreign predators have not held off during the election campaign.

France faces a possible bid by Italian bank Unicredit for one of the country's biggest banks Societe Generale, and a bid by Spanish construction group Sacyr Vallehermoso for French public works and transport concession company Eiffage.

Montsegur Finance fund manager Chaulet said a victory for Socialist Segolene Royal would not necessarily spoil the takeover party in the Paris stock market.

"Markets aren't too worried by the outcome. You have to remember that during the reign of Socialist president Francois Mitterrand in the 1980s, the French market had one of its best ever runs."

He added that many blue-chip French firms were now multinational companies, with many operating in fast-growing emerging markets that meant they were less vulnerable to the vagaries of the French economy.

"The election's impact is diluted by the fact that most French companies make much of their money outside of France."

For Sarkozy's proposals, see.

For Royal's proposals, see.