MORNING BID EUROPE-Hollande bows out of crowded race

* A look at the day ahead from European Economics and Politics Editor Mark John and Nigel Stephenson, specialist editor, EMEA markets. The views expressed are their own.

LONDON, Dec (Shanghai: 600875.SS - news) 2 (Reuters) - By nature an incorrigible optimist, Francois Hollande finally got real last night and gave up on a second term. By falling on his sword after a dismal presidency, he at least gives the French left a shouting chance in next year's election. All eyes will now turn to his Prime Minister Manuel Valls, who could announce his decision to run for Socialist ticket as early as Saturday (Shenzhen: 002291.SZ - news) . But even with Hollande out of the picture, the field still looks uncomfortably crowded on the left: the Socialist candidate will be sandwiched between the centrist Emmanuel Macron and Jean-Luc Melenchon on the far left. By contrast, Francois Fillon and Marine Le Pen look comfortably spaced out from each other on the other side of the political spectrum. As things stand now, they are still favourites to make the decisive second round of the election on May 7.

As our handy cut-out-and-keep graphic shows (http://tmsnrt.rs/2fIcq0j), all this comes as Europe's politics are a mess. While Russia's Vladimir Putin calls the shots in Syria and cuts OPEC oil deals, his counterparts to the West are barely clinging to power at home. After Hollande, Italy's Matteo Renzi is the next centre-left leader whose unimpressive track record will be put to the test. Sunday's referendum on constitutional reforms will be used by many Italians as a protest vote against the incumbent (sounds familiar?). If Renzi loses, the fear is that the ensuing political uncertainty will hinder efforts to clean up the Italian banking sector and could even further weaken the euro. On the same day, Austrians go to the polls in an election which could hand them the dubious mantle of choosing the first far-right head-of-state in western Europe since World War Two.

MARKETS AT 0755 GMT

Government bond yields are up again after Treasury yields hit multi-month highs on Thursday, largely in reaction to the OPEC-Russia output deal. Crude prices are down a bit on Friday after this week's surge and the dollar is down both on the day and the week. Investors are perhaps turning cautious before the monthly ritual of the U.S. jobs report. If, as expected, it is strong, it is likely to fuel expectations that U.S. interest rates will rise faster than many have hitherto assumed. Economists polled by Reuters forecast the economy added 175,000 jobs last month.

Euro zone government bond yields are up, also driven by worries over the outcome of Italy's referendum on Sunday. Interesting, though, that the Italian yield premium over Germany has narrowed as some wonder what exactly a "No" vote would mean.

The dollar index is down 0.2 percent, the euro up 0.1 percent at $1.0660, the yen flat at 114.10 per dollar and sterling, lifted on Thursday by suggestions a hard Brexit might not be as hard as assumed, is up 0.3 percent at $1.2630.

Upcoming data/events/themes for market reports on Friday:

* SKorea Q3 GDP revision

* Europe corp events: Berkeley Group (Brexit Watch)

* Swiss Q3 GDP

* UK Nov construction PMI

* EZ Oct PPI

* Brazil Oct industry output

* US Nov employment report

* Canada Nov employment report

* Fed governor Tarullo, Cleveland Fed chief Mester both speak in Washington

* Moody's reviews Turkey, Sweden, Angola, Albania, Azerbaijan, Kenya, Kuwait, Namibia, Romania, Qatar

* S&P reviews SAfrica, Ireland (Other OTC: IRLD - news) , Poland

* Fitch reviews Bulgaria

* DBRS reviews Cyprus, Sweden (Editing by Larry King)