LONDON, July 14 (Reuters) - European stocks fell on Friday as French stocks and bonds took a battering from political turmoil, while elsewhere investors weighed up the U.S. rates outlook after a week of mixed signals.
At 0934 GMT, the STOXX 600 was down 0.6% on the day (.STOXX), opens new tab. France's CAC 40 was down 1.6%, plunging to its lowest since February (.FCHI), opens new tab.
President Emmanuel Macron's grip on power has weakened after left-wing parties united against him, leaving market participants worried that the far right, led by Marine Le Pen's Rassemblement National (RN), could win the election and push a high-spending agenda.
France's finance minister said the country faces the risk of a financial crisis if the far right were to win a snap election in the coming weeks.
The risk premium on French government bonds surged to its highest since 2017, and the spread between French and German 10-year government bond yields was at 79.1 basis points .
"It is justified that some political risk is priced into French assets. Markets are weighing the risks of an RN government, assuming more fiscal slippage, nationalization risks, etc," said Amelie Derambure, Senior Multi-Asset Portfolio Manager at Amundi in Paris.
But Derambure added that the risks are "very different from 2017" because the RN is not talking about taking France out of the European Union.
"That is a major difference," she said.
The euro was down 0.6% on the day at $1.067175, its lowest in more than six weeks, in a move analysts said was due to the risk premium on European markets following the European elections last weekend, where gains by far-right parties dealt a blow to the leaders of France and Germany.
