French stocks drag European shares lower on political turmoil

By Shristi Achar A and Shashwat Chauhan

(Reuters) -European shares dropped in a broad-based selloff on Friday, marking a weekly loss amid political turmoil in France that has sent the French benchmark reeling.

The pan-European STOXX 600 closed 1% lower, touching a more than five-week low and clocking its worst single-week drop of this year with a 2.4% decline.

France's CAC 40 index shed 2.7%, underperforming the region's bourses, and the risk premium on domestic bonds hit a seven-year high. [GVD/EUR]

Most regional bourses logged weekly losses. The French benchmark saw the worst with a 6.2% tumble.

French Finance Minister Bruno Le Maire warned that the euro zone's second-biggest economy faced the risk of a financial crisis if either the far right or left won the coming parliamentary election because of their heavy spending plans.

France's left-wing parties will launch a manifesto for their renewed alliance on Friday in a bid to challenge the far-right National Rally (RN), which is leading the polls ahead of the snap vote.

"The events have reinforced our negative outlook on France, and we would not look to build positioning at current market levels until there is more certainty surrounding the elections," said Iain Stealey, international CIO for fixed income at J.P. Morgan Asset Management.

European Central Bank President Christine Lagarde largely dodged a question about the turmoil in French financial markets.

European lenders slid 2.3% and led declines, with French banks BNP Paribas, Societe Generale and Credit Agricole dropping between 2.7% and 3.6%.

Automobile-related shares extended losses, falling 2.1% to their lowest levels in more than four months on uncertainty over how China might respond to the EU's new tariffs on imported Chinese electric vehicles.

Germany is reportedly trying to prevent or soften the bloc's tariffs.

On the data front, French consumer prices rose 2.6% in May, slightly lower than a preliminary reading of a 2.7% increase published in late May.

European shares saw outflows of $600 million in the week to Wednesday, extending the streak of outflows to four straight weeks, according to BofA Global Research data.

British homebuilder Crest Nicholson jumped 13.7% after it said that rival Bellway's revised and unsolicited 650 million pound ($828 million) all-share takeover offer "significantly undervalued" the group.

Bellway's shares fell 4.4%.

H&M advanced 2.4% after UBS upgraded the world's second-largest listed fashion retailer to "buy" from "neutral".

(Reporting by Shristi Achar A and Shashwat Chauhan in Bengaluru; Editing by Sherry Jacob-Phillips, Savio D'Souza and Andrew Heavens)