June 17 (Reuters) - French stocks and the euro tumbled last week as political uncertainty in France and the possibility of a far-right-dominated parliament spooked investors, while the gap between French and German government borrowing costs soared.

Marine Le Pen's eurosceptic National Rally is leading in opinion polls following President Emmanuel Macron's surprise decision to call a snap vote, while France's left-wing parties have formed a new alliance to fight the election.

The worry for markets is that a far-right French prime minister could pursue high-spending "France first" economic policies, adding to the country's large debt pile. Some investors have started to talk of the risk of the euro zone breaking up, although that remains a way off.

Here are four charts showing how markets have been reacting.

French stocks have sold off hard. The blue-chip CAC 40 is at its lowest since January, having shed 6% last week - its biggest weekly drop in over two years.

"There's an element of 'shoot first, ask questions later' with regards to France," said Tom O'Hara, a portfolio manager on the European equities team at Janus Henderson Investors.

"We're focused on global companies that are listed in Europe. Certainly, those that are more domestically exposed, there are going be more question marks about."

Midcaps, which typically have more exposure to the underlying national economy, fell 9%, the biggest weekly drop since March 2020's pandemic turmoil.

Banks have been particularly hard hit. BNP Paribas , Credit Agricole and Societe Generale all lost over 10% last week, losing roughly $19 billion in market cap since the previous Friday's close, based on LSEG data.

French government bonds are also under pressure.

The difference between French and German 10-year borrowing costs rose to 78 basis points on Friday, the highest since 2017 on an intraday basis and on track for a closing level not seen since the euro zone crisis of 2012.

The spread reflects the premium investors demand to hold French government bonds rather than German bonds, the euro zone benchmark.

The wider spreads could provide a "tactical buying opportunity," said analysts at UBS, "but we expect investors to take a wait-and-see attitude until there is more clarity on electoral alliances, as well as fiscal policies in the case of a cohabitation - a situation where the prime minister and president are from different parties."

It now costs the French government more to borrow money for 10 years than it does the Portuguese government for the first time since at least 2005, according to LSEG Datastream .

Spreads are also widening due to a general rush for safe haven assets in Europe and that includes German government bonds. The yield on German Bunds dropped 24 bps last week, its biggest weekly drop since December.

"It is going to be a long month for the euro," said Chris Turner, global head of markets at ING.

The currency has dropped 1% against the dollar, British pound and Swiss franc last week alone, and is at its lowest against the pound in almost two years.

Markets are braced for further sharp moves. One-month options volatility for the euro against both the dollar and the pound has jumped to its highest in over a year.

"With opinion polls taking such a toll on the euro and presumably more polls due..., we expect investors will want to manage their euro exposure carefully," said Turner, who reckons the euro could drop towards $1.06 this week, which would be its lowest since November. It's currently at $1.070.

The cost of insuring France's debt against default has also rocketed.

France's five-year credit default swap widened to 38 basis points (bps) on Friday, having been just 24 bps as of market close on June 7, a week before.

These levels are the highest since the pandemic, and prior to that, since the 2017 presidential election, when markets feared Le Pen might be elected France's president.

(Reporting by Alun John and Harry Roberston; Additional reporting by Dhara Ranasinghe; Editing by Amanda Cooper and Christina Fincher)