* Bunds rise as U.S. budget deal remains elusive * Latest "fiscal cliff" comments unsettle markets * Italian yields rise before debt sale By Ana Nicolaci da Costa and Marius Zaharia LONDON, Dec 27 German bonds rose on Thursday in thin trading as doubts grew about U.S. lawmakers' last-minute attempts to avoid major fiscal tightening early 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. President Barack Obama was flying back to Washington on Thursday and the top Republican in Congress planned to speak with House of Representatives lawmakers as the year-end deadline drew nearer. But Senate leader Harry Reid said it looked like the U.S. economy was headed towards the fiscal cliff, sending safe-haven debt higher and riskier stocks lower. "It doesn't look good. We hope now with Obama coming back to DC that he can try to break the impasse which is still lingering," David Keeble, global head of fixed income strategy, at Credit Agricole said. German Bund futures rose 67 ticks to 145.45, having triggered stops above the 144.99 level, according to one trader. "Safe-haven assets (such as Bunds) should remain supported as long as the fiscal cliff debate remains unsolved," Commerzbank rate strategist Rainer Guntermann said. Data showing U.S. consumer confidence fell to a four-month low in December also lent support to safe-haven debt, but traders cautioned against reading too much into exaggerated price moves in thin liquidity, between the Christmas holidays and the end of the year.. "Flows-wise, we have seen not much at all," a second trader said. ITALIAN AUCTION Attention turned to an Italian auction on Friday, when Rome will offer up to 6 billion euros of five- and 10-year bonds in its last auction of the year. In the secondary market, Italian 10-year yields were 4.2 basis points higher at 4.53 percent as some investors sold the paper to make room for the supply. Five-year yields were up 5.8 bps to 3.25 percent. "We have seen a little bit of a concession today on the Italian curve, so I think it should actually go fairly okay even though the (market) conditions are a little bit difficult," Keeble added. Heavy redemptions helped Rome sell all the bills and bonds it aimed to at a sale on Thursday. Investors are keeping a close watch on political developments in Italy as it prepares for an election early next year. Outgoing technocrat Prime Minister Mario Monti - a figure investors felt comfortable with - has said he would consider seeking a second term as Italian prime minister if approached by allies committed to backing his austere brand of reforms. "The market has already priced in more (turmoil) with regards to elections. It is in a balanced state of uncertainty at the moment," Commerzbank's Guntermann said.