EURO GOVT-Bunds steady, Italian politics to keep markets edgy

LONDON Tue Dec 11, 2012 2:15am EST

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LONDON Dec 11 (Reuters) - German Bund futures opened little changed on Tuesday with focus for the session likely to fall on Italian politics after technocrat Prime Minister Mario Monti's weekend decision to resign early unsettled investors.

The resignation plan brought forward an Italian election and caused some to sell their bonds and book profits on a recent strong rally, anticipating a drawn-out election tussle that could undermine the country's commitment to austerity.

Bund futures were 2 ticks higher at 145.62 although traders said activity was expected to be subdued awaiting the outcome of the Federal Reserve's two-day policy meeting starting later in the session.

A Reuters poll showed the U.S. Federal Reserve is expected to announce on Wednesday that it will extend its asset purchase scheme and commit to buy $45 billion of U.S. debt per month, helping to keep yields low on closely-correlated German Bunds.

"The market will be severely disappointed if we don't get fresh purchases now. You'd feel that outcome is in the price, there's now more risk that they don't do anything and we get disappointment," a trader said.

"Bunds will be sensitive to that particularly given the rally we've had back to the low end of the yield range."

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