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* Sarkozy steps up right-wing rhetoric after Hollande edges

first round

* Le Pen, third, records highest ever vote for National

Front

* First time a sitting president fails to win round one of

vote

(Adds Sarkozy rally, Bayrou decision, Le Pen quote)

By Daniel Flynn and Brian Love

April 23 (Reuters) – French President Nicolas Sarkozy

appealed directly to far right voters on Monday with pledges to

get tough on immigration and security, after a record showing in

a first round election by the National Front made them potential

kingmakers.

Polls show centre-right leader Sarkozy on course to become

the first French president to lose a bid for re-election in more

than 30 years, trailing Socialist challenger Francois Hollande

ahead of a May 6 run-off.

Hollande pipped Sarkozy in Sunday’s 10-candidate first round

by 28.6 percent to 27.2 percent, but National Front leader

Marine Le Pen stole the show, surging to 17.9 percent, the

biggest tally a far-right candidate has ever managed.

Her performance mirrored advances across the continent by

anti-establishment Eurosceptical populists from Amsterdam and

Vienna to Helsinki as the euro zone’s grinding debt crisis

deepens anger over government spending cuts and unemployment.

“National Front voters must be respected,” Sarkozy told

reporters as he left his campaign headquarters in Paris. “They

voiced their view. It was a vote of suffering, a crisis vote.

Why insult them? I have heard Mr Hollande criticising them.”

The unpopular Sarkozy, the first sitting president to be

forced into second place in the first round of a re-election

bid, now faces a difficult balancing act to attract both the

far-right and centrist voters he needs to stay in office.

The weak showing by Sarkozy spooked investors already

nervous about European governments’ ability to service their

debts, helping to send French stocks and bonds lower.

Returning to the campaign trail on Monday, Sarkozy hammered

home promises to toughen border controls, tighten security on

the streets and keep industrial jobs in France – signature

issues for Le Pen at a time of anger over immigration, violent

crime and unemployment running at a 12-year high.

Sarkozy will hold a “real workers'” day rally on May 1 in a

bid to upstage simultaneous events held by Hollande, the FN and

trade unions.

After five turbulent years leading the world’s fifth

economy, Sarkozy could go the way of 10 other euro zone leaders

swept from office since the start of the crisis in late 2009.

Hollande has vowed to change the direction of Europe by

tempering austerity measures with higher taxes on the rich and

more social spending. Polls published on Sunday predicted he

would win the run-off with between 53 and 56 percent of votes.

But the strong showing of Le Pen, gravel-voiced 43-year-old

daughter of National Front founder Jean-Marie Le Pen, offered

Sarkozy a glimmer of hope by suggesting there are more votes up

for grabs on the right than had been thought.

“Marine Le Pen’s breakthrough throws the second round wide

open,” read the front page of right-leaning Le Figaro, while

left-wing Liberation read: “Hollande leads. Le Pen the killjoy”.

HIGH TURNOUT

Hollande blamed Sarkozy for fuelling the rise in the far

right and said he would make no attempt to seek National Front

votes. “Since some voters supported them out of anger, I will

listen to them…but I will not court the far right,” he said.

On a strong turnout of 80.2 percent, more than a third of

voters cast ballots for protest candidates outside the

mainstream, foreshadowing a possible reshaping of France’s

political balance of power at parliamentary elections in June.

Le Pen’s focus is now on securing a strong National Front

showing in the parliamentary vote, and she is keeping her

distance from Sarkozy, describing him as doomed.

“Faced with an outgoing president who will leave a much

weakened party, we are the only true opposition to the

neo-liberal left,” she told cheering supporters on Sunday.

She said she would give her view on the runoff at a May Day

rally in Paris. Speaking on France 2 she said it was insulting

to her voters to say they had chosen her in protest and

suggested she would not formally endorse either candidate.

“I don’t change my mind like I change my shirt,” she said.

“I have nothing to sell or negotiate. For a long time I have

considered Nicolas Sarkozy and Francois Hollande to be the same

on core subjects.”

It is not the first time Sarkozy has appealed to National

Front voters before a runoff – the tactic helped him win his

first mandate in 2007. Le Pen’s strategy director Florian

Philippot said it would not work twice: “The French no longer

fall for this electioneering game Sarkozy plays.”

Financial market analysts say whoever wins in two weeks’

time will have to impose tougher austerity measures than either

candidate has admitted during the campaign, cutting public

spending as well as raising taxes to cut the budget deficit.

INVESTOR JITTERS

European markets were sour after the French results and the

Dutch government’s failure to push through an austerity budget

made elections there almost unavoidable. The euro retreated from

two-week highs, European stocks opened lower, and safe-haven

German bonds opened higher, increasing the premium investors

demand to hold French and Dutch bonds.

“It’s beginning to look like the perfect storm,” said

Stewart Richardson, chief investment officer at RMG. “It looks

like the French vote was more against Sarkozy than we would have

thought last week, and so there is a leftward lurch in France.”

Sarkozy challenged Hollande to three television debates over

the next two weeks instead of the customary one. But Socialist

aides said Hollande, who has no ministerial experience and is a

less accomplished television performer than Sarkozy, had made

clear he would accept only one prime-time live debate, on May 2.

Communist-backed hard leftist Jean-Luc Melenchon, who polls

showed at one stage challenging Le Pen for third place, finished

a distant fourth on 11.1 percent, ahead of centrist Francois

Bayrou with 9.1 percent.

Political pundits said Hollande still appears to have larger

reserves of second-round votes than Sarkozy, who would need to

pick up at least three quarters of Le Pen’s supporters and two

thirds of Bayrou’s to squeak a wafer-thin victory.

Polls taken on Sunday by three institutes suggested that

between 48 and 60 percent of Le Pen voters planned to switch to

the president, while Bayrou’s backers split almost evenly

between the two finalists, with one third undecided.

Bayrou said he would make his decision on May 3 after

consulting and listening to the two finalists.

“The game is getting very difficult for Nicolas Sarkozy,”

Jerome Saint-Marie of CSA polling agency told i>TELE. “There’s a

genuine demand for social justice, precisely because times are

hard and voters see sacrifices will have to be made … What

they want is that this pain is fairly shared.”

Melenchon, whose fiery calls for a “citizens’ revolution”

drew tens of thousands to open-air rallies, urged his followers

to turn out massively on May 6 to defeat Sarkozy, but he could

not bring himself to mention Hollande by name.

Greens candidate Eva Joly endorsed Hollande, who can also

count on the modest votes of two Trotskyist also-rans.

“Sarkozy is going to be torn between campaigning in the

middle ground and campaigning on the right. He’ll have to reach

out to the right between the rounds, so he’ll lose the centre,”

said political scientist Stephane Rozes of the CAP think-tank.

If Hollande wins, joining a small minority of left-wing

governments in Europe, he has promised to renegotiate a European

budget discipline treaty signed by Sarkozy. That could presage

tension with German Chancellor Angela Merkel, who made the pact

a condition for further assistance to troubled euro zone states.

A spokesman for Merkel said on Monday she continued to

support Sarkozy but had no plans to campaign on his behalf.

(Additional reporting by Catherine Bremer, John Irish, Nicholas

Vinocur, Vicky Buffery, Alexandria Sage, Brian Love, Matthias

Blamont and Daniel Flynn in Paris, Anirban Nag in London;

Editing by Peter Graff)