* Italian, Spanish yields extend falls
* ECB outlook offsets unease over Italy’s political tensions
* German, French, Dutch and Austrian bonds also firm
By Emelia Sithole-Matarise
LONDON, Nov 4 (Reuters) - Euro zone government bonds mostly pushed higher on Monday, underpinned by expectations the European Central Bank could signal further monetary policy easing at its meeting this week.
Both core and lower-rated euro zone bonds have rallied over the past week after plunging euro zone inflation firmed up market bets the ECB will be forced to ease policy further in coming months.
The policy outlook is offsetting concerns about political tensions in Italy before a Senate vote on whether to expel former premier Silvio Berlusconi from parliament after a tax fraud conviction.
Italian 10-year yields fell 4 basis points to 4.08 percent while equivalent Spanish yields were 5 bps down at 3.97 percent.
“Clearly market expectations turned recently in favour of a potential (ECB) rate cut, probably not this week but there’s a high probability it could be delivered in December,” said Patrick Jacq, a strategist at BNP Paribas in Paris.
“To some extent as the ECB is seen very dovish this is offering support for the periphery.”
The ECB has not officially signalled any imminent easing since its October meeting and it is unclear going into Thursday’s meeting whether it would opt to cut rates or prefer to give banks a fresh injection of cheap long-term loans.
In core markets, the German Bund future was 10 ticks up at 141.95, having hit two-month highs at 142.32 last Thursday. Cash 10-year Bund yields were 1 basis point lower at 1.68 percent while Dutch, French and Austrian yields also dipped.
Some in the market like Commerzbank strategists urged caution going into the ECB meeting, saying there was a risk the market may be disappointed.
“We still see the risk that the ECB may struggle to live up to the increasing expectations for additional stimulus measures as the ECB may not share the sense of urgency to act,” they said in a note.
“Unintended side effects from negative interest rates or LTROs (long-term loans) may be too high a hurdle. A dovish wording from Draghi is ensured but no action this week is still likely to see rates markets souring.”
Traders will also keep a close eye on final readings of euro zone business surveys for October later in the session for hints about the market’s near-term direction.