Le Pen spectre shocks markets

THE euro took a tumble as investors fretted over the prospect of an ultra right-wing candidate winning the French Presidential election. Even though few were expecting Jean-Marie Le Pen would win the election, the extent of his support in the first round sent shock waves through currency markets.

European stock markets were also weaker despite a surging overnight performance in Asia. France's CAC-40 slipped back more than 1%, and there were similar falls in Germany and London.

Traders reported fears of an isolationist France in the heart of Europe, destabilising the political structure of the eurozone. Kamal Sharma, currency strategist at Commerzbank, said: 'A potential right-wing President could bring in a very insular government in what is the second-biggest economy in the region.'

Dealers recalled the negative impact on euro sentiment of right-wing Italian Prime Minister Silvio Berlusconi's rise to power, although his policies ended up being less radical than feared.

Adding to the negative sentiment, in Germany Gerhard Schroeder's Social Democrats suffered a huge loss in a regional election on Sunday, leaving many to doubt his chances of re-election as Chancellor in September. His centre-left party came third in the poor eastern state of Saxony-Anhalt.

The euro fell nearly half a US cent to 88.79 cents and dropped a third a penny to 61.23p.