* Italy’s bond yields up in late trade, give up falls
* Italy ready for tough tactics - Di Maio reported saying (Updates with more details, price action, comments)
By Dhara Ranasinghe
LONDON, Aug 8 (Reuters) - Italy’s government bond yields rose in late trade on Wednesday, reversing earlier falls after reported comments by Deputy Prime Minister Luigi Di Maio that highlighted market sensitivity to politics in the euro zone’s third biggest economy.
Italy is ready to repeat the tough tactics it used to win concessions from the European Union on migration in the forthcoming battle over the budget, Di Maio said, according to a report by Bloomberg News.
Two-year Italian government bond yields were up almost 8 basis points at 0.99 percent.
Italy’s 10-year bond yield was 3.5 basis points higher at 2.91 percent, pushing out the closely-watched gap over German 10-year Bund yields to 251 bps.
“It looks like some reported comments from Di Maio that appear confrontational are moving the market,” said Rabobank bond strategist Lyn Graham-Taylor.
Earlier, bond yields had fallen 5-7 basis points across the curve after Prime Minister Giuseppe Conte said the government would not make “foolish” demands while negotiating with the European Commission over its 2019 budget.
The Italy/German bond yield spread had briefly narrowed to its tightest in nearly a week at 241 bps after Conte’s comments.
But the rally in the Italian bond market proved fleeting with the reported comments from Di Maio — the leader of the anti-establishment 5-Star Movement — highlighting investors’ sensitivity to headlines from Rome.
The coalition government that took office in Rome in June has ambitious spending plans that have raised concerns on financial markets. The coalition is made up of the 5-Star and far-right League.
“It is back and forth in Italian markets at the moment, with (Economy Minister Giovanni) Tria and Conte taking a moderate tone,” said Nordea Chief Analyst Jan von Gerich.
“But we should take today’s comments with a slight pinch of salt as this may not be the last words on the budget.”
Italy is one of the most indebted countries in the euro zone, with a debt-to-GDP ratio 131.8 percent at the end of last year, according to Eurostat. This compares with 86.7 percent for the euro zone overall.
Elsewhere, most other 10-year euro zone bond yields were little changed in late trade, with Germany’s benchmark 10-year bond yields at 0.40 percent.
Reporting by Dhara Ranasinghe Editing by Tommy Wilkes, Richard Balmforth