* Fitch maintains Italy rating at BBB
* Hurdles emerging to League’s plans to push for snap elections
* Italian bond yields fall, stocks rise
* Euro zone periphery govt bond yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Aug 12 (Reuters) - Italy’s 10-year bond yield fell from five-week highs on Monday as a decision by Fitch to leave the country’s rating unchanged bought some relief to a market hit by the prospect of early elections in the euro zone’s third biggest economy.
Fitch Ratings on Friday maintained Italy’s sovereign credit rating at ‘BBB’ and its outlook at negative, citing a high level of general government debt, low-trend GDP growth, policy risk and uncertainty arising from current political dynamics.
Italian bonds also benefited from signs that League leader Matteo Salvini’s call for snap elections after he turned on his own coalition partner faces mounting resistance from other parties, whose support the League would need in parliament for a no-confidence vote to succeed.
Italian yields were down 7-9 basis points in early trade, with 10-year yields at 1.75%, falling from five-week highs hit on Friday at 1.83%.
The closely watched Italian/German 10-year bond yield gap narrowed to 230 bps, having widened to around 239 bps on Friday.
“Fitch kept Italy’s rating unchanged and some market participants may be betting that a snap election could be delayed,” said DZ Bank rates strategist Sebastian Fellechner, referring to the fall in yields. “We expect snap elections will take place even if they are delayed.”
The League on Friday filed a no-confidence motion to bring down the government it formed with the anti-establishment 5-Star Movement, a move that Salvini hopes will trigger new elections as soon as October and install him as Italy’s new leader.
Salvini is pushing for a vote on the motion this week, while opposition parties would prefer to wait until Aug. 19-20. The decision lies with the heads of political groups in the Senate, who will meet on Monday to set a timetable.
Snap election risks meant the outlook for Italian bonds was uncertain even though higher yields in Italy have attracted strong inflows in recent months, analysts said.
Japanese investors bought Italian bonds in June at the fastest pace in more than four years.
“Those who have been tempted into buying Italian debt given the yield pickup offered (the Japanese for instance) will likely now give it a second thought,” Mizuho said in a note.
Outside Italy, most euro zone bond yields were little changed on the day. Germany’s 10-year Bund yield was steady at -0.58%, close to recent record lows.
Reporting by Dhara Ranasinghe; editing by John Stonestreet