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CORRECTED-Euro zone bonds hold ground as investors remain cautious

(Corrects Italian bond auction maturities, reference story in last paragraph)

* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr

AMSTERDAM, Oct 27 (Reuters) - Euro zone bond yields held their ground on Tuesday as the continued rise in coronavirus cases and the lack of progress on U.S. stimulus kept investors cautious before Thursday’s European Central Bank meeting.

White House economic adviser Larry Kudlow said on Monday that talks over a coronavirus relief package have slowed, although House Speaker Nancy Pelosi remained hopeful an agreement could be reached before the Nov. 3 election.

At the ECB meeting, the bank is not expected to change its policy, but investors will watch for hints on how likely it is to add to its bond purchases in December.

“Ahead of ECB on Thursday and the U.S. presidential election in just one week, we expect EGB (euro government bond) markets to stay in a tight range with no additional risk positions being taken on,” Piet Haines Christiansen, chief analyst at Danske Bank, told clients.

Germany’s 10-year bond yield was unchanged at -0.58% in early trade.

Although rising coronavirus cases across Europe continue to cause alarm, the safe-haven German bond’s yield was above its lowest since March at nearly -0.64%, which it reached earlier in October as the second wave of coronavirus broke in European markets.

Italian 10-year bond yields, which fell as much as 9 basis points on Monday to a one-week low after S&P lifted the outlook on Italy’s credit rating, were unchanged at 0.73%.

Italian bonds had already erased much of their gains in later trading on Monday amid the coronavirus worries and the setback to U.S. stimulus hopes.

That means the gap between Italian and German 10-year yields -- effectively the risk premium on Italian debt -- is just 3 basis points lower than Friday’s close, prior to S&P’s outlook upgrade, at 129 basis points.

In the primary market, Italy raised 3.25 billion euros in an auction of an inflation-linked bond due 2026 and a two-year zero-coupon bond. (Reporting by Yoruk Bahceli, editing by Larry King)

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