* Bonds recover ground after Friday's sharp sell-off
* Focus on Wednesday's Dutch parliamentary election, Fed
* Election seen as litmus test of populism in Europe
* Spate of ECB speakers awaited on Monday
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, March 13 Euro zone government bond
yields pulled back from multi-week highs on Monday, as nervous
investors turned their focus to this week's Dutch parliamentary
elections -- the next key gauge of populism in Europe.
Bond markets sold off heavily on Friday on news that some
European Central Bank policymakers had discussed the possibility
of lifting interest rates before ending quantitative easing.
But the week began with a calmer tone, with investors
reluctant to dump safe-haven bonds just ahead of Wednesday's
closely-watched election in the Netherlands as well as a U.S.
Federal Reserve meeting that is tipped to end with a rate hike.
The Dutch vote is viewed as a barometer of voter sentiment
in a big European economy after last year's Brexit vote and
unexpected U.S. presidential election results roiled markets.
Polls suggest the far-right ticket will double its vote and
its results could affect investor perceptions' on coming
elections in France and Germany this year.
Anti-EU nationalist Geert Wilders, running almost
neck-and-neck with conservative Prime Minister Mark Rutte,
stands to double his seat total in parliament while the two
coalition parties' share is cut almost in half.
Although the risk of a eurosceptic party coming to power in
the Netherlands is small, a strong election performance could
renew concerns about the popularity of the far-right in French
presidential elections in April and May, said Erin Browne, head
of macro investments at UBS O'Connor, a hedge fund manager
within UBS Asset Management.
"If you see a eurosceptic party gains a significantly larger
share of the vote than current polls suggest that could spill
over into concern about the French elections and the National
Front doing better in the second round of voting than is
currently being predicted," she said. "That's the risk for
markets with a view to the Dutch elections."
Top-rated Dutch bonds have been resilient to domestic
political risks -- partly because mainstream Dutch parties have
ruled out forming a government with Wilders' Freedom Party. In
contrast, French bonds have taken a beating this year from
French election nerves.
Indeed, Dutch bond markets showed little reaction to a
diplomatic confrontation between the Netherlands and Turkey
after two major incidents on Saturday.
ABN AMRO fixed income strategist Kim Liu said that the
anti-Islam Freedom Party as well as Rutte's conservative VVD
party could benefit from the weekend developments.
Dutch 10-year bond yields fell 2 basis points
on Monday to 0.56 percent, down from one-month highs. The gap
over benchmark German 10-year Bund yields was around 9 bps and
not far off the tightest levels since last April.
Other euro zone bond yields were down 2-4 bps on the day,
with German Bund yields down from five-week highs.
A number of ECB policy makers, including ECB chief Mario
Draghi, are expected to speak on Monday. The ECB last week
signalled a diminishing urgency for more policy action and
highlighted an improving economic outlook.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Reporting by Dhara Ranasinghe; Editing by Toby Chopra)