France Faces Political Gridlock After Surprising Election Results

French shares and bond prices turned higher on Monday after early falls due to election results that left France with a hung parliament. A left-wing surge blocked Marine Le Pen's far-right ambitions, creating uncertainty. Investors are now focused on who will be the next prime minister as France faces political gridlock.

French shares and bond prices turned higher in early trading on Monday after initial falls as investors digested elections which left France facing a hung parliament and the prospect of taxing negotiations to form a government.

A surprise left-wing surge in Sunday's election blocked Marine Le Pen's quest to bring the far right to power in the National Assembly, but no single group secured a working majority. French assets traded choppily at the open as traders struggled to process relief at the absence of a far-right victory, concern about a more powerful left, and uncertainty about who will eventually form a government.

France's blue-chip CAC40 share index was last up 0.4%, reversing an earlier fall, though still down around 4% since the election was called in early June. Bond markets were also uncertain, with the gap between Germany and France's 10-year bond yields last a touch narrower at 66.5 bps. The euro steadied after an initial fall against both the dollar and the pound.

(With inputs from agencies.)