* Macron seen as clear favourite in French election
* Euro volatility falls to more normal levels
* Wait on U.S. tax moves prompts caution
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Patrick Graham
LONDON, April 24 (Reuters) - 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, easing currency market concerns about 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 -- returned to relatively normal levels around 8.5 percent, pointing to a fall in concern over the prospects of a victory for anti-EU, anti-euro nationalist Marine Le Pen next month.
The euro 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 as much as 30 percentage points in two weeks' time, suggesting players can buy back into the currency.
But a trimming of the euro's gains to a little more than 1 percent in Asian and European trade hinted at some caution.
"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 that people will wait until the second round," said Richard Benson, co-head of portfolio investment at 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 the euro ... The question is, are there hedges that have to get covered? Then the euro might still rise a bit more."
By 1300 GMT the euro had gained 1.1 percent from Friday's close in New York to trade at $1.0837 and 84.68 pence respectively.
Strategists at French bank Credit Agricole said their positioning measures showed the euro had been bought for most of the last week, suggesting that many players had already closed previous "short" bets against the currency.
"Speculative-oriented investors were running a long position going into the first round of the French election," they said in a morning note.
"This in turn suggests there is limited position squaring-related upside risk left. If anything, fresh buying may be needed to drive the single currency higher in the short term."
One reason for the dollar's relatively robust performance after the initial drop against the euro may be expectations of an announcement on tax reform -- a key issue for the currency -- by the White House this week.
As markets globally were comforted by the results of the French vote, the flood of money out of the perceived security of the yen was also as marked as that into the euro.
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 trading flat.
It steadied at around 110.26 yen per dollar, a shade more than 1 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 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
Editing by Toby Chopra and David Goodman