EURO GOVT-Bunds surge on indecisive Italy election outcome

LONDON Feb 26 (Reuters) - German Bund futures jumped to a two-month high on Tuesday while equivalent Italian futures tumbled as an indecisive Italian election fuelled fears of political instability in the euro zone's third biggest economy.

Higher-yielding euro zone bonds were seen under selling pressure as Italy faced political deadlock after a huge protest vote left no group with a clear majority in parliament.

"It's just not a great outcome (in Italy's election) at all, so risk-off should be the theme. I can't see any reason why we shouldn't trade that way especially given that there are fairly significant longs in the periphery compared to where we were a few months ago," a trader said.

The German Bund future was last 113 ticks up at 144.65 compared with 143.52 at Monday's settlement, while Italian BTP futures were 353 ticks down at 108.97.