EURO GOVT-Debt market steady as U.S. budget deal deadline nears
* U.S. fiscal cliff debate continues * Safe-haven Bunds steady, markets not panicking * Italian yields inch higher before debt sale By Marius Zaharia LONDON, Dec 27 (Reuters) - Euro zone debt markets were little changed on Thursday, with investors focused on last-ditch efforts by U.S. lawmakers to avoid major fiscal tightening from automatically coming into force next year. The United States could face about $600 billion of tax hikes and spending cuts in 2013 if Democrats and Republicans fail to find common ground in budget negotiations, potentially sending the world's biggest economy back into recession. But even if a compromise is not reached before the end of the year - as initially expected - budget measures could be agreed in January and enforced retroactively, analysts said. "Safe-haven assets (such as Bunds) should remain supported as long as the fiscal cliff debate remains unsolved," Commerzbank rate strategist Rainer Guntermann said. "But there is no sense of panic. The market has come to some sort of understanding that the end of December is not an extremely hard deadline." Bund futures were last 12 ticks higher on the day at 144.89, having traded in a relatively narrow range of 144.62-144.94 through the session in thin volumes. In a sign that there may be a way to break the budget deadlock, Republican House of Representatives Speaker John Boehner offered to consider any bill the Democrat-controlled Senate produced. President Barack Obama returns to Washington on Thursday and investors expect the talks to avoid a fiscal crisis to resume. Some traders said the relative sense of calm in the market may be misleading as many investors have closed their books for the year. "It's a strange one given the lack of developments on the fiscal cliff," one trader said of the lack of volatility in the market. "But I think at the end of the day people are just not doing much (trading) given that it's the end of the year." ITALIAN YIELDS STEADY AHEAD OF AUCTION Debt issued by the euro zone's lower rated states was also broadly stable. Italian 10-year yields were 5 basis points higher at 4.53 percent as some investors sold the paper to make room for new supply of five- and 10-year paper due on Friday, when Rome holds its last debt auction of the year. Commerzbank's Guntermann expected the sale to go through smoothly as the treasury "probably ensured enough domestic demand." Political developments in Italy will be closely watched next year as analysts expect a potentially bitter election campaign to increase uncertainty over whether the country can continue to implement debt-cutting reforms. Outgoing technocrat Prime Minister Mario Monti - a figure investors felt comfortable with - said he was available for a second term, but opinion polls are inconclusive. "The market has already priced in more (turmoil) with regards to elections. It is in a balanced state of uncertainty at the moment," Guntermann said.