* Investors relieved Renzi's party leads in EU vote
* French yields steady, market shrugs off National Front win
* Focus on fact pro-EU parties dominant in parliament
(Adds detail, analysts' comments)
By Emelia Sithole-Matarise
LONDON, May 26 Italian bond yields fell on
Monday as Prime Minister Matteo Renzi's centre-left Democratic
Party led the anti-establishment 5-Star Movement in European
parliamentary elections, in an endorsement of his reforms.
Signs of the outcome in Italy were in sharp contrast to much
of Europe where Eurosceptic nationalists scored stunning
victories in elections in France and Britain on Sunday.
Critics of the European Union more than doubled their seats
in a continent-wide protest vote against austerity and
unemployment but bond investors focused instead on the fact that
the majority of seats would be held by parties supporting the
Renzi's party had a strong lead over the 5-Star Movement of
former comic Beppe Grillo, early projections showed, easing
niggling concerns that a poor result by the Democratic Pary
would weaken Renzi's drive for the swift reforms he promised
when he took power.
Italian 10-year bond yields were 9 basis
points down at 3.06 percent with Spanish equivalents 6 bps lower
at 2.93 percent. Traders said intra-day moves
could be exaggerated by thin volumes with UK and U.S. markets
shut for holidays.
"In Italy we've seen voters endorsing the policies of Renzi
whose party came out as the strongest party in these elections
and this seems to be taken very positively by the market," said
Christian Lenk, a fixed income strategist at DZ Bank.
"We have not seen spectacular outcomes in terms of
Eurosceptic parties in the weaker countries except for Greece
... and that seems enough to draw investors back."
Greek 10-year yields were 2 bps lower at 6.51 percent
after the anti-austerity Syriza movement of Alexis
Tsipras won the vote but failed to deliver a knockout blow to
the government of Prime Minister Antonis Samaras.
French yields were flat at 1.82 percent with
the market shrugging off for now the anti-euro and
anti-immigration National Front's triumph at the weekend polls
and focusing instead on the balance of power in the EU
parliament which still lies with the pro-EU parties.
"We doubt that the outcome will result in a marked spread
widening, but the performance of French government bonds will be
watched closely today with risk of underperformance,"
Commerzbank strategists said in a note.
With the EU vote out of the way, investors were now focusing
on the European Central Bank's policy meeting next week at which
it is expected to announce new stimulus measures, further
supporting lower-rated euro zone bonds.
(Editing by Alister Doyle)