Veltroni more likely to cut Italy deficit-Intesa

MILAN, April 1 (Reuters) - Italian centre-left leader Walter Veltroni's economic programme is more likely to cut Italy's budget deficit than his opponent Silvio Berlusconi, leading to a narrower gap between Italian and German bonds, Italian bank Intesa Sanpaolo (ISP.MI) said in a study on Tuesday.

Italy holds national elections on April 13 and 14 and Veltroni and centre-right leader Berlusconi are the two leading contenders, with the latter ahead in opinion polls.

Veltroni's policies focus on families rather than companies, making them more likely to confront the current economic slowdown, Intesa Sanpaolo said.

Veltroni's programme would cut Italy's debt to 94 percent of gross domestic product (GDP) by 2011 and may lead to an upgrade of Italy's investment grade by rating agencies, the bank said. In contrast, Berlusconi's goals would likely return Italy's budget deficit to more than 3 percent of GDP, violating European Commission guidelines.

The yield spread between Italian BTPs and German Bunds on a 10-year maturity tightened to 45 basis points on Tuesday, the narrowest it has been since Feb. 29, according to Reuters data.

An increase in Italy's budget deficit by 1 percent of GDP would imply a widening of the spread by 2.2 basis points, Intesa Sanpaolo said.

Whoever wins the elections will take a while to impact the economy and the strength of Italy's bonds this year will depend on the resilience of the country's economy, "which is exposed to the cycle's slowdown," Intesa Sanpaolo said.

(Reporting by Gabriella Bruschi)