* Italy's Renzi expected to trigger leadership race
* Euro zone periphery yields tmsnrt.rs/2ii2Bqr
By Dhara Ranasinghe
LONDON, Feb 13 Italy led euro zone bond yields
higher on Monday as former Italian prime minister Matteo Renzi
looked set to trigger a leadership contest of his ruling
Democratic Party, highlighting political risks in the bloc's
third biggest economy.
Heightened political uncertainty in the euro area has been a
major driver of bond yields so this year, with investors rattled
by a strong showing for far-right, eurosceptic presidential
candidate Marine Le Pen in April's French election.
Dutch voters go to the polls in March, while Germany holds
elections in September.
But on Monday, Italy was the focus ahead of a Democratic
Party meeting later in the day. Renzi is expected to play a
disruptive card by stepping down and sparking a leadership bid
which could imply months of campaigning.
A leadership context could delay the early election Renzi
has pushed for since he quit as prime minister after a
referendum defeat in December.
Italy is not scheduled to go the polls until early 2018 but
opposition parties including the Five-Star Movement - Italy's
largest opposition group - and the anti-immigration Northern
League are also calling for an early vote.
"The problem in Italy is that there is bit of chaos in that
the Democratic Party itself doesn't have a united view on
whether it wants snap elections," DZ Bank strategist, Daniel
Lenz, said. "We have this meeting today and we do not know the
outcome, so that is having a negative impact."
Italy's 10-year bond yield rose 3 basis points (bps) to 2.29
percent, keeping the gap over top-rated German
bonds close to three-year highs near the 200 bps hit last week.
Other euro zone bond yields were 1-2 bps higher, although
safe-haven German Bund yields were steady at 0.33 percent
- not far off 2-1/2 week lows hit last week.
Analysts said German bonds were also supported by broader
geopolitical worries after a missile test by North Korea at the
Greece was also a source of concern, weighing on risk
sentiment in the euro zone.
Initial optimism that the International Monetary Fund and
Greece's euro zone lenders had narrowed some differences over a
bailout package was tempered over the weekend.
A senior European Union official said on Sunday that Greece
and its lenders should quickly approve a review of reforms the
country must take in return for unlocking new loans, warning of
financial instability in the euro zone if the issue lingers.
For Reuters Live Markets blog on European and UK stock
markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets
(Editing by Louise Ireland)