EURO GOVT-Bunds choppy as markets mull Fed easing impact
* Bund reverse early losses, impact of U.S. QE uncertain
* Italian, Spanish auctions seen going smoothly
* Bonds rally before debt auctions, Italy concerns ease
By William James
LONDON, Dec 13 (Reuters) - German Bund futures rose in choppy trading on Friday as investors struggled to assess the long-term impact of the U.S. Federal Reserve's decision to buy more Treasuries in a bid to stimulate the economy.
At the same time, bonds issued by Italy and Spain further recovered losses made early in the week as concerns eased that the resignation plan of Prime Minister Mario Monti would weaken Italy's resolve to reform.
German bonds fell at the open before recovering to leave futures 12 ticks higher on the day at 145.38.
The Fed said on Wednesday that it would buy $45 billion in Treasuries each month alongside an existing pledge to purchase$40 billion of mortgage-backed securities and would expand its purchases to include five-year notes.
"It's quite thin volumes out there. It's hard to read because you can say more quantitative easing is a good thing for the U.S. economy and maybe we should be risk-on," said Rabobank strategist Lyn Graham-Taylor.
"But you can read it the other way too, that the economy is still struggling and it's a risk-off trade. I don't think the market has made up its mind particularly yet."
The additional Fed buying had been widely expected and priced in to markets, as indicated by the subdued reaction in equities. European stocks were slightly lower on the day after rallying for three weeks, with analysts citing concern over the still unresolved "fiscal cliff" in the United States.
Focus moved to debt sales from Italy and Spain due later in the day. Both were expected to find demand but the strength of bidding will be closely watched for clues on how willing investors will be to support the debt-laden sovereigns in 2013.
Italian bond yields were 5 basis points lower on the day at 4.61 percent while equivalent Spanish yields fell 6 bps to 5.34 percent.
The fall in yields further unwound a rise seen on Monday after Monti said he would resign once the 2013 budget had been passed, bringing forward an expected election by some six weeks.
"Monti said he would not resign until he had done what he needed to do, so for the (Italian bond) market it's not actually that bad," said Patrick Jacq, strategist at BNP Paribas in Paris.
"There is still limited potential for this market to rally but nothing as huge as we've seen in the past few days."