* Macron seen clear favourite in second round vote
* Euro volatility falls to more normal levels
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, April 24 The euro surged and the yen
sank on Monday after the first round of France's presidential
election turned out bang in line with opinion polls, settling
currency market worries of another systemic political shock from
next month's second round.
Measures of expected volatility of the euro - driven to
their highest in a year by nerves ahead of the vote - collapsed
back to relatively normal levels around 8.5 percent, pointing to
a fall in concern over anti-EU, anti-euro nationalist Marine Le
Pen's chances next month.
The euro itself rose by as much as 2 percent after the
initial indications from voting gave victory to centrist
frontrunner Emmanuel Macron, as predicted by weeks of polling.
The same polls show Macron defeating Le Pen by around 30
percentage points in two weeks time and that will allow players
who have hedged - or dumped - their holdings of euro zone assets
to buy back in.
But with the single currency easing back to just a 1 percent
gain in Asian and early European deals, there was uncertainty
about whether it would rise further with the arrival of U.S.
fund investors later in the day.
"If you are a Japanese former holder of French sovereign
debt, you probably can't just buy it all back straight away, it
may be people will wait until the second round," said Richard
Benson, co-head of portfolio investment with currency fund
Millennium Global in London.
"I'd like to think the euro might go up another 1 percent or
so. $1.10 looks very important for euro. 112 (yen) for dollar
yen. The question is are there hedges that have to get covered
then the euro might still rise a bit more."
By 0819 GMT, just over 12 hours after the end of voting in
France, the euro had gained 1.04 percent from Friday's close in
New York to trade at $1.0837. It gained 1.2 percent
against sterling to 84.37 pence.
As markets globally were comforted by the results of the
vote, the flood of money out of the perceived security of the
yen were more marked. The Japanese currency fell 2 percent
against the euro and by more than 1 percent against the dollar
at a time when most other major non-euro currency pairs were
It steadied at around 110.08 yen per dollar, 0.9 percent
down on the day.
"Overall, the probability of a Le Pen presidency has
decreased but is not yet null," Deutsche Bank economists said in
a special note to clients.
"The risks of a possible new scandal, strong debate
performance by the National Front leader or complacency from the
electorate should still be monitored."
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Writing by Patrick Graham; Editing by Jamie McGeever and Toby