France Election Reports Reverberate in Markets

LONDON -- The Paris market closed with steep losses Monday as speculation over a snap French election rattled investors and triggered fresh single-currency doubts that weakened the dollar.

The U.S. currency slipped more than one pfennig with the French political uncertainty denting the recent optimism over prospects for Europe's single currency and bolstering the Deutsche mark.

London had a good day, ending well up though trade was thin. Frankfurt finished floor trade marginally ahead, but computerized trade was hurt by worries that the weakening dollar would undermine exports and ended nearly down.

French stocks fell about 1 percent with investors spooked by expectations that President Jacques Chirac would call elections because he wants a mandate to push through austerity measures aimed at qualifying France for a single European currency by 1999.

The market, while accepting that Chirac's gamble could pay off, also feared it could unleash protest votes, perhaps favoring the Socialists or the National Front.

And Socialist leader Lionel Jospin is on record as saying he would not impose tough policies to hit the 3 percent Maastricht deficit target if that increased unemployment -- effectively setting out the election agenda.

"The strong absolute performance seen [in the stock market] since the beginning of the year could dry up or even reverse," if the political risk increases in the coming weeks, Gary Dugan, equity strategist at J.P. Morgan said.

Besides stocks, bonds and interest rate contracts all suffered from the mood of political uncertainty. The franc weakened against the German currency, trading at 3.3774 per mark, compared with 3.3698 late Friday.

In Frankfurt, stocks were down for much of the day as the dollar's slide against the mark dimmed prospects for the exports sector. Shares traded on the floor managed to claw back the losses to finish marginally ahead, but worries over the consequences of the weaker dollar persisted and after-hours deals were nearly 1 percent down at the end.

Industrial giant Daimler-Benz AG came under the most dollar-driven pressure and was down 2.35 marks at 128.05 marks in afternoon trade. Dealers said Daimler's problems were exacerbated by a report in the Bild newspaper that Bonn was planning to raise gasoline tax. The government denied the report.

London showed gains of 0.42 percent at close as worries over interest rates and the outcome of the May 1 election were offset by the debut of Britain's newest bank, which surpassed expectations. Shares in newly-floated Alliance & Leicester ended at 558 pence after touching 578 pence in rapid early trade.

On the currency front, the dollar was hit by the stronger mark, which benefited from the emu worries. The dollar was dragged down by the overall strength of the mark, which gained on its European counterparts as worries emerged that France may have difficulty balancing pro-monetary union policies with efforts for economic growth.