Bonds, stocks brush off Eurosceptic election gains

By Marc Jones

LONDON (Reuters) - Italian assets surged and German shares hit all-time highs on Monday as solid election showings by pro-European forces in both countries provided an antidote to Eurosceptic gains in France, the UK and Greece.

Though nationalists scored stunning victories in a number of weekend votes, Italy's pro-European Prime Minister Matteo Renzi's centre-left Democratic Party was on course for a resounding win over the anti-establishment 5-Star Movement of former comic Beppe Grillo.

For investors, it was a relief after pre-election polls had pointed to a much closer contest that would have raised fresh questions over the country's ability to keep its already wobbly economic reform programme on track.

Italian shares MILAN:FTMIB jumped almost 3 percent in heavy opening trade and benchmark government bonds were on course for their biggest one-day percentage gain since the start of January 2013.

In Germany, where Chancellor Angela Merkel's Christian Democrats finished top, the Dax index XETRA:GDAXI climbed 1 percent to a record high, while there was a 1.4 percent bounce for Greek stocks AT:ATG and the euro pulled up from a three-month low.

"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."

UKRAINE GAINS

Asian shares had also had a solid day, hitting one-year high on Monday thanks to a strong session on Wall Street on Friday - also helped by an apparently decisive win for billionaire Petro Poroshenko in Ukraine's presidential election.

MSCI's broadest index of Asia-Pacific shares outside Japan was last trading up 0.1 percent. Japan's Nikkei share average TOKYO:N225 gained 1.0 percent to a 7-week high, though trade was slow due to market holidays in London and New York.

Exit polls in Ukraine gave Poroshenko, a confectionery magnate with long experience in government and diplomatic ties to both Russia and the West, more than 55 percent of the vote.

Results will not be announced until later on Monday but runner-up Yulia Tymoshenko, on 13 percent, made clear she would concede, sparing the country a tense three weeks until a runoff round would have been held.

"Poroshenko's victory in the first round of the vote is positive for political stability, even though there remains a huge uncertainty and we need to keep an eye on further developments," said Junya Tanase, chief currency strategist at JPMorgan Chase Bank in Tokyo.

The improved mood lifted Russian stocks MCX:MCX to three-month highs and put pressure on the safe-haven yen, which fetched 101.94 yen to the dollar in early European trade, near its lowest level in more than a week.

'EARTHQUAKE'

The euro climbed to $1.3642 on the election relief in Italy, though it remained within touching distance of a three-month low having been pushed down in recent weeks by strong signals the European Central Bank will cut interest rates next week.

Among the Eurosceptic successes, France's far right National Front scored a stunning victory that Prime Minister Manuel Valls called "an earthquake" for the country and for Europe.

Greece's radical leftist Syriza also rode a wave of anti-austerity anger to win the country's EU election, though it failed to deliver a knockout blow against Prime Minister Antonis Samaras's government, official projections showed.

Among commodities, Brent crude fell below $110 a barrel, dipping further from last week's two-and-a-half month high as worries over Ukraine eased. Gold was a shade lower at $1,291 an ounce.

(Additional Reporting by Emelia Sithole-Matarise; Editing by John Stonestreet)