* Fillon stays in presidential race despite legal probe
* Move seen strengthening position of centrist Macron
* French stocks hit 15-month high
* French/German yield gap touches tightest in a month
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By Dhara Ranasinghe and Danilo Masoni
LONDON, March 1 The premium investors demand for
holding French bonds over German ones hit a one-month low on
Wednesday, while French stocks climbed to a 15-month high after
French presidential candidate Francois Fillon vowed to stay in
the election race.
Analysts said the move should strengthen the position of
independent centrist candidate Emmanuel Macron. French bonds
gyrated after a morning of speculation that Fillon was about to
withdraw from the campaign over allegations of misuse of public
funds, which he denies.
Fillon said on Wednesday he would remain in the French
election race despite a judicial summons.
Fillon and Macron are both seen likely to beat far-right
National Front leader Marine Le Pen, whichever one faces her in
the May runoff, so Fillon's decision to stay in the race is
reassuring, a trader at a European bank said.
Opinion polls show Macron consolidating his status as
"The word from Fillon is that he soldiers on regardless and
that leaves Macron as the candidate most likely to win," said
Societe Generale strategist Ciaran O'Hagan.
France's 10-year government bond yield was up just 1.2 basis
points at 0.90 percent, trimming earlier rises.
That helped narrow the gap between French and German 10-year
government bond yields, a barometer of how investors view
relative risks, to a one-month low of 64 basis points. That is
down from 84 bps last week and the widest level since late 2012.
French stocks meanwhile extended their gains after Fillon's
statement, with the benchmark stock index rising 1.7 percent to
around 4,944 points - the highest level since December 2015.
Shares of the biggest French banks were up more than 3
percent and were among the best performers on the blue chip CAC
40 index. Societe Generale was up 4.2 percent
while BNP Paribas was up 3.9 percent.
In another twist, former agriculture minister Bruno Le Maire
said he would resign from Fillon's campaign team over his vow to
stay in the race despite the summons.
Fillon's campaign has been dogged since late January by an
official investigation into alleged misuse of taxpayers' money
involving hundreds of thousands of euros paid to his wife and
family. He had been favourite to win until the affair began.
French bonds have taken a beating since the start of the
year on fears about the popularity of the far right's, anti-euro
Le Pen in the presidential race.
Le Pen has said she would take France out of the euro and
denominate its national debt in a new currency.
But over the past week, Macron has gained ground in the
polls, boosted by an alliance with centrist Francois Bayrou.
"Macron is now seen as the frontrunner to win and the most
credible candidate to beat Le Pen," said Antoine Bouvet, rates
strategist at Mizuho. "Fillon remaining in the race, on balance,
is positive for Macron. If he had stepped down, there is no
clear candidate to replace him."
The euro was down against a broadly stronger dollar,
showing little immediate reaction to developments in France.
(Editing by Alison Williams)