The S&P 500 rose 0.3%. France’s CAC 40 Index jumped as much as 2.8% before retracing some gains. Banking stocks led the advance in Europe’s Stoxx 600 Index, as French lenders Societe Generale, BNP Paribas and Credit Agricole all surged by more than 5%. The euro climbed to its strongest level since mid June.

French 10-year government bond prices however reversed earlier gains, pushing yields up by 4 basis points to 3.33%, their highest since November, in a sign of continued nervousness about political risks in the country. IG market analyst Tony Sycamore said: 

There is a sense of relief that the first round of the French elections weren’t as comprehensively in Marine Le Pen’s favour as the polls indicated. 

"This raises hopes that the National Rally won't win an outright majority, nor be in a position to open the purse strings, a proposition which had the French bond market and the euro looking nervously over their shoulders."

Exit polls showed Ms Le Pen's National Rally (RN) winning around 34% of the vote, comfortably ahead of leftist and centrist rivals. But the chances of the eurosceptic, anti-immigrant RN winning power next week will hinge on the political dealmaking by its rivals over the coming days.

Vasu Menon, managing director of investment strategy at OCBC, said: 

Investors are concerned that if the (RN) wins a majority, this could set the stage for France to clash with the EU, which could disrupt Europe’s markets and the euro sharply. 

Traders are also weighing their strategies after last week’s US presidential debate. Morgan Stanley strategists say equity investors “should stay selective” and maintain a bias toward quality US stocks heading into election season. In a separate note, the firm said that the growing prospect of a Donald Trump presidential victory is making yield curve steepeners an attractive bet as growth will likely slow and inflation quicken under such a scenario.