* Italian yields stable near eight-year lows
* Renzi forces Letta to resign as Italy's prime minister
* Markets view Renzi as "positive change"
By Marius Zaharia and Joshua Franklin
LONDON, Feb 14 Italian bond yields held near
eight-year lows on Friday as investors warmed to the prospect of
centre-left leader Matteo Renzi taking over as prime minister
from low-key party rival Enrico Letta.
Letta plans to tender his resignation to President Giorgio
Napolitano on Friday after his Democratic Party supported
Renzi's call for a new, more "ambitious" government. Napolitano
is then expected to call on Renzi to form a new administration.
Renzi has criticised Letta for failing to introduce
growth-boosting reforms as Italy lagged an economic rebound in
peripheral peers Spain, Portugal and Ireland. Rome badly needs
to improve its growth prospects to curb a 2 trillion euro debt
pile, which is roughly 1.3 times its economic output.
Investors seemed to take the news well, with 10-year Italian
yields stable at 3.72 percent, about 6 basis
points above an eight-year low hit earlier this week. They
traded around 3.78 percent before Renzi proposed the leadership
change to his party late on Thursday.
"The appointment of Renzi is seen as something positive. He
is a new politician who can take decisive action," BNP Paribas
rate strategist Patrick Jacq said.
"He looks like he has a stronger support from the majority
and he is more able to conduct structural reforms... This is not
political uncertainty. In fact, the political situation in Italy
now is clearer."
One trader said any dip in Italian bond prices was a buying
opportunity for him as he saw the leadership change as
Also supportive for low-rated euro zone debt, and negative
for top-ranked bonds, was above-expectations fourth-quarter
economic growth data from France and Germany. Figures for the
euro zone as a whole are due at 1000 GMT.
German 10-year Bund yields, the euro zone's
benchmark, were up slightly at 1.682 percent.
Renzi is due to lead Italy's third administration in a year
and his coalition partner, the New Centre Right Party, said it
did not expect him to last a full term until 2018.
The unstable political backdrop has been one of the factors
to blame for Italian yields trading above their Spanish peers.
Spanish Prime Minister Mariano Rajoy has survived a
corruption scandal in his party and has been able to push
through reforms that have improved economic indicators beyond
But for some, Renzi brings renewed hope.
"A couple of years ago in the middle of the debt crisis when
we had political problems it was putting significant upward
pressure on yields," ICAP strategist Philip Tyson said.
"Based on what's gone on in the past, you have to question
whether this will be sustainable also. But I think the market's
viewing it from the point of view that, of anybody available at
the moment, he offers the most potential."
Moody's Investor Service is due to review Italy's credit
rating on Friday, in accordance with new European regulations
obliging ratings agencies to publish a calendar of when they
might adjust their views on sovereigns.
Analysts do no expect any change in Italy's ratings or
outlook and the agency may not make any announcement if it
decides to maintain the status quo.
Moody's rates Italy Baa2, while Standard & Poor's ranks it
BBB and Fitch has it on BBB+, all with a negative outlook and
citing political fragility as one of the factors weighing on its