Italian bond futures rally ahead of possible confidence vote

LONDON Wed Oct 2, 2013 2:15am EDT

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LONDON Oct 2 (Reuters) - Italian bond futures firmed on Wednesday on expectations the government will survive any no confidence vote with the support of senior members of former premier Silvio Berlusconi's party.

Government tensions increased after five centre-right ministers resigned at the weekend over feuds about an imminent sales tax hike. But Berlusconi's allies have also threatened to bring the government down if the media tycoon was evicted from parliament following his tax fraud conviction.

Divisions within his party widened sharply this week, however, easing concerns about a fresh round of potentially inconclusive elections.

Sources in Prime Minister Enrico Letta's centre-left Democratic Party said late on Tuesday he had not yet decided whether to call a formal vote of confidence in parliament on Wednesday after a frantic round of meetings.

"I would imagine (gains) could go a bit further on hopes Letta can scoop some votes from Berlusconi's party and the government will survive," one trader said.

BTP futures opened 50 ticks higher on the day at 111.72.

German Bund futures were 2 ticks up at 140.28 before a European Central Bank meeting later on Wednesday. While the bank is not expected to make any changes in its monetary policy, investors will be looking for any new hints on whether it could offer new long-term unlimited loans to banks (LTROs) to keep liquidity ample and short-term rates low.

"I think they'll leave the door open for new LTROs but I don't think he'll signal anything imminent and that's probably the market view as well," the trader said.

The reaction to a U.S. government shutdown remained muted as markets expected it to be temporary.

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