EURO GOVT-Bund selloff slows as U.S. faces new budget battles

LONDON Thu Jan 3, 2013 2:10am EST

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LONDON Jan 3 (Reuters) - German Bunds edged lower on Thursday, with the impact of a deal to avert large-scale fiscal tightening in the United States fading as politicians there ready for bigger budget battles in coming weeks.

President Barack Obama signed a deal on Wednesday to stave off some $600 billion in automatic tax hikes and spending cuts. But Republican lawmakers, angry the deal did little to curb the federal deficit, said they would use a debate over lifting the U.S. debt ceiling to win deep spending cuts.

Failure to raise the borrowing limit could mean a U.S. debt default.

"We had a knee-jerk reaction yesterday... There is still a lot of work to be done ... on spending cuts," one trader said.

At 0703 GMT, safe-haven Bund futures were 5 ticks lower at 144.02, having fallen by almost 150 ticks on Wednesday.

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