Italian govt bonds surge to six-week high

LONDON, May 08 (Reuters): Italian government bond yield rose sharply on Tuesday, lifting southern European peers, as the possibility of an early Italian election increased with the country's largest anti-establishment parties polling strongly.

President Sergio Mattarella called on Monday for Italy's bickering parties to rally behind a "neutral government", but Italy's two largest parties, the far-right League and anti-establishment 5-Star Movement, rapidly came out against the proposal.

This raises the likelihood of an unprecedented immediate return to the polls, even as early as July.

"If we go to a new election, both M5S and the League are polling a bit higher than at the last election, so the worry for markets is that they are able to leave behind Forza and we get the government of non-traditional parties," said Rabobank strategist Lyn Graham-Taylor.