Italy bank stocks, bonds fall on report Brussels considering disciplinary action

LONDON, May 27 (Reuters) - Italian banking stocks fell and government bond yields rose in thin holiday trade on Monday after a report Brussels is considering disciplinary action over Rome’s failure to rein in public debt.

The banking index was down 1.7% at 1350 GMT, extending earlier losses. Government bond yields extended their rise across the board, with the benchmark 10-year yield up 7 basis points to 2.62 percent.

The Bloomberg report cited an official as saying the European Commission was considering proposing the disciplinary procedure next week, potentially paving the way for a 3.5-billion-euro ($4 billion) penalty.

The Commission will issue a report on Italian public finances on June 5, with the final decision falling to its president Jean-Claude Juncker. (Reporting by Danilo Masoni in MILAN and Abhina Ramnarayan in LONDON; Writing by Josephine Mason in LONDON; editing by John Stonestreet)