December 20, 2017 / 2:19 PM / 3 months ago

UPDATE 2-Euro zone bonds resume selloff on US tax reform plans

* Euro zone bond yields up 3-6 bps

* Italian 10-year bond yields at 2-month peak

* U.S. 10-year Treasury yields at 9-month high

* U.S. tax overhaul nears completion (Adds quotes, details, chart)

By Abhinav Ramnarayan and Dhara Ranasinghe

LONDON, Dec 20 (Reuters) - Euro zone government bonds sold off sharply on Wednesday for a second straight day as a major U.S. tax overhaul neared completion, putting upward pressure on U.S. Treasury yields.

Government bond yields - which move inversely with the price - have risen sharply this week in both the U.S. and Europe on optimism U.S. tax reform will help boost economic growth and inflation.

The Republican-controlled U.S. House of Representatives was expected to give final approval to a sweeping tax bill on Wednesday and send it to President Donald Trump to sign into law.

Analysts say many traders are also closing out positions as the year comes to a close, exacerbating the move in yields.

“This is essentially the final trading week of the year so it is no surprise that there is a clearing out of positions in the bond market,” said Orlando Green, European fixed income strategist at Credit Agricole.

“We’ve had a technical shift and that could last another day or two.”

In late European trade, bond yields across the single currency bloc were up 3-6 basis points on the day.

German 10 and 30-year bond yields hit their highest levels in around a month, while Italy’s 10-year government bond jumped 6 bps to a two-month high of 1.97 percent.

The yield on 10-year U.S. Treasuries hit a nine-month high of 2.497 percent, pushing euro zone counterparts higher.

The selloff in the U.S. bond market has steepened the Treasury yield curve, which in recent days has been at its flattest in a decade.

Some analysts were not convinced that progress in U.S. tax reform was the main driver of a steeper yield curve.

“U.S. tax reform looks an unlikely driver of this steepening move given the well-telegraphed nature of this legislative development,” said Rabobank in a note.

Bond yields in Germany, the euro zone’s biggest economy, had already jumped on Tuesday after the country announced an increase in 30-year bond issuance for 2018.

Elsewhere, Portugal saw its borrowing costs drop further below Italy’s and the spread over other peers was at its tightest level in years as the country’s impending inclusion into bond indices and stable politics drew in investors.

With political noise surrounding Italy and Spain, the yield on Portugal’s 10-year benchmark bond outperformed the rest of the market.

Additional reporting by Fanny Potkin; graphic by Dhara Ranasinghe; editing by Andrew Roche

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