* 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
(Updates prices, adds detail)
By Emelia Sithole-Matarise
LONDON, May 26 Italian bond yields slid on
Monday after Prime Minister Matteo Renzi's centre-left
Democratic Party triumphed in European parliamentary elections,
strengthening his mandate to push for economic reforms.
The yields were set for their biggest one-day fall since
October 2013, with Renzi one of the few leaders across Europe to
have scored a victory against Eurosceptic nationalists who
stunned mainstream parties 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 beat the anti-establishment 5-Star Movement of
former comic Beppe Grillo, easing concerns that a poor result by
the Democratic Party would weaken Renzi's drive for the swift
reforms he promised when he took power.
Italian bonds outperformed most of the market, with 10-year
yields dropping 13 basis points (bps) to 3.03
percent, while their Spanish equivalents were 7 bps lower at
2.92 percent. Traders said intra-day moves could
be exaggerated by thin volumes, with British and U.S. markets
closed 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 33 bps down at 6.22 percent
, reversing some of last week's rise after the
anti-austerity Syriza movement won the vote but failed to
deliver a knockout blow against Prime Minister Antonis Samaras's
A credit rating upgrade on Friday by Fitch to B from B- with
a stable outlook also bolstered sentiment in Greek bonds.
French yields edged up 1 bps to 1.83 percent
after the anti-euro and anti-immigration National Front's
triumph, but the rise was capped as investors reckoned the
result was unlikely to seriously destabilise the Socialist
"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 looking
towards the European Central Bank's policy meeting next week at
which it is expected to announce new stimulus measures, further
supporting euro zone bonds.
Ahead of the meeting, ECB President Mario Draghi reiterated
that the bank was watching exchange rate and credit dynamics
carefully and stood ready to act should it see signs of a
negative price spiral taking hold.
(Editing by Alister Doyle and Pravin Char)