* French election risk being unwound - analyst
* Yen slumps as Japan intervention risks grow
* U.S. manufacturing index comes in lower than expected
* U.S. construction spending falls

By Harry  Robertson and Gertrude Chavez-Dreyfuss
       LONDON/NEW YORK, July 1 (Reuters) - The euro climbed on Monday
after a convincing and historic win by the French far right in the
first round of parliamentary elections fell slightly short of some
expectations, leaving the final result dependent on party deals before
a second round next weekend.
    Meanwhile, the yen sank to a new 38-year low after data showed
Japan's economy shrank more than initially reported in the first
quarter, leaving traders on alert for signs of intervention to prop up
the currency.
    Marine Le Pen's far-right National Rally (RN) party won the first
round of France's parliamentary elections on Sunday by a large margin,
exit polls showed, although analysts noted it won a smaller share of
the vote than some polls had initially projected, triggering a rally
in stocks and bonds.
    The euro was last 0.4% higher at $1.0753, having earlier
climbed to a two-week high. It has lost around 1.3% since the French
far right triumphed in European parliamentary elections in early June,
prompting President Emmanuel Macron to call a snap domestic election.
    "It's an alleviation of risks. We're seeing a lot of hedges going
into the French election getting unwound," said Simon Harvey, head of
FX analysis, at Monex Europe in London.

    Investors have been concerned that the RN could come to power
through "cohabitation" with Macron and push a high-spending and
euro-sceptic agenda.
    "First round results are not offering much certainty about the
composition of the parliament, and the second round scheduled for next
weekend is in fact the big risk event," said Francesco Pesole,
currency strategist at ING.
    Pesole also said the fact that the left-wing coalition, which also
wants to boost government spending, did not receive more votes than
expected was likely boosting the euro too.
    The rise in the euro sent the dollar a touch lower against a
basket of currencies, though the greenback was on the back foot after
data on Friday showed U.S. inflation cooled in May, cementing
expectations the Federal Reserve will begin cutting interest rates
later this year.
    The dollar index was last flat on the day at 105.72.
    Against the dollar, sterling rose 0.2% to $1.2674, while
the Aussie was down 0.1% at US$0.6665.
    The dollar slipped after data showed after a U.S. manufacturing
index fell 48.1 in June, lower than the forecast of 49.1.
    U.S. construction spending for May also came in weaker than
expected, falling 0.1%, compared with expectations for a 0.2% rise.
    Market pricing now points to about a 63% chance of a Fed cut in
September, as compared to a 55% chance a month ago, according to the
CME FedWatch tool.
    
    YEN UNDER PRESSURE
    The yen fell to another 38-year low against the
greeenback, sliding to 161.58 yen per dollar. The U.S. currency was
last up 0.4% at 161.57.
    The yen has fallen more than 12% this year, with its latest
decline to the weaker side of 160 per dollar keeping investors on
heightened alert for intervention from Japanese authorities to prop up
the currency.
    "In terms of line in the sand, we have two. We have 163 and if
this evolves relatively quickly in the next two to three weeks, I see
the Bank of Japan would intervene in the market to purely stem or slow
the pace of depreciation," said Monex's Harvey. 
    "If they don't intervene at 163, then obviously 165 stands out as
the next psychological level based on current fundamentals."
    Data showing weaker-than-expected economic growth added to the
uncertainty about the Bank of Japan's next move in interest rates. 
    The BoJ meets in late July and has hinted that it could raise
borrowing costs, potentially helping close the yawning gap between
Japanese and U.S. rates that has hammered the yen this year by causing
investors to flock to the higher returns on U.S. bonds.
    Separate data on Monday showed the business mood in Japan's
service-sector soured in June, offsetting a big lift in factory
confidence.
    
    
 Currency                                                          
 bid                                                              
 prices at                                                        
 1 July                                                          
 02:40                                                            
 p.m. GMT                                                         
 Descripti  RIC    Last      U.S.       Pct     YTD Pct  High     Low
 on                          Close      Change           Bid      Bid
                             Previous                             
                             Session                              
 Dollar     <=USD  105.79    105.72     0.09%   4.36%    105.82   105.
 index      >                                                     42
 Euro/Doll                                                    718
 Dollar/Ye                                                     82
 Euro/Yen                                                     61
 Dollar/Sw                                                    84
 Sterling/                                                     718
 Dollar/Ca                                                     6
 Aussie/Do                                                     652
 Euro/Swis                                                    46
 Euro/Ster                                                    75
 NZ                                                            76
 llar                                                             
 Dollar/No                                                       024
 Euro/Norw                                                    119
 Dollar/Sw                                                       41
 Euro/Swed                                                    436
 
    
 (Reporting by Harry Robertson in London and Gertrude Chavez-Dreyfuss
in New York; Additional reporting by Rae Wee in Singapore; Editing by
Stephen Coates, Jason Neely and David Evans)