PARIS/LONDON (Reuters) - The two main left-leaning candidates in France's presidential election are holding talks on possible cooperation, in a move that would require them to reconcile some major policy differences but could possibly put one of them in contention.
If Socialist Benoit Hamon and Jean-Luc Melenchon, of the hard left, agreed to team up, opinion polls suggest their combined vote might provide the Left with a chance of going through to face the far-right's Marine Le Pen in the May 7 second round of voting.
"We are having discussions and we will continue to have discussions," said Hamon, the 49-year old former education minister who beat more right-leaning candidates for the Socialist ticket in January.
"We have talked and we will talk again today," he said on France Info radio, acknowledging talks would be "difficult".
Melenchon's camp on Friday released text of a letter to Hamon in which the 65-year-old veteran leftist said the talks were at his initiative, but which also set out conditions.
In the letter, Melenchon did not go out of his way to raise hopes of success, adding that he "no longer had any confidence in hollow deals between political parties."
Among his conditions was that Hamon should denounce the five-year term of the governing Socialists he represents and support his anti-EU and anti-NATO positions - policies unacceptable to the party of outgoing President Francois Hollande.
Melenchon, who quit the Socialist party in 2008 to form his Left party and has won the backing of the Communists for the presidential vote, has repeatedly said he will not step down as an independent candidate in favour of Hamon. His letter showed no softening of this position.
Hamon, who in January won a Socialist primary on a far-left platform, has tended to sidestep the question when asked, and did so again on Friday.
Opinion polls put combined support for the two men at levels which could potentially be enough to reach the runoff between the two top-scoring candidates.
Investors fear that a hard-left Socialist candidate such as Hamon would fare worse against the anti-EU, anti-immigrant Le Pen than other centrist contenders.
Frederic Dabi of Ifop pollsters said the Hamon-Melenchon talks were likely to fail to lead to an agreement, however. "It's starting too late, and neither of them will pull out," Dabi said.
Contenders seen as most likely to face Le Pen in the second round are centrist Emmanuel Macron, favourite according to most polls, and Francois Fillon, second favourite. Both are seen beating the National Front leader for the presidency.
Hamon was on a first round score of 14-14.5 percent and Melenchon 11.5-12 in a Cevipof poll on Thursday.
Both said the talks would also involve green party candidate Yannick Jadot, who would get 2 percent of the vote according to Thursday's Cevipof survey.
A second-round place for Hamon or Melenchon would create a new dynamic in the runoff, which opinion polls consistently indicate would most likely be against Le Pen.
However, there are major disagreements between the two, notably on the European Union. Melenchon is hostile to some of its treaties and wants them revised, but Hamon favours further convergence.
"It would not be easy. He knows it as I do. What clearly separates us is the European ideal," Hamon said.
The premium investors demand to hold French government debt instead of German debt increased after Hamon spoke.
"These suggestions that we will have talks between Hamon and Melenchon ... would be a real game-changer for the presidential election," said Natixis strategist Cyril Regnat said.
France's 10-year government bond yield climbed 3 basis points on the day to 1.04 percent before settling back to a 1 basis point rise, and the yield spread over Germany rose 8 bps to 73 bps before giving up its highs to stand 5 bps higher. [GVD/EUR].
(Corrects paragraph 19 to say the premium investors demand, not pay, to hold French debt.)
Additional reporting by Sudip Kar-Gupta; Writing by Andrew Callus; Editing by Richard Balmforth and Hugh Lawson