LONDON, May 7 (Reuters) - German government bond yields fell to five-week lows on Tuesday and Italian shares fell, led by the the country’s banking index, after the European Commission revised down euro area growth forecasts, and cut its already gloomy outlook on Italy.
The spread between Italy’s 10-year bond yields and their German 10-year counterparts also widened, as the latter slipped as low as -0.04 percent. Italy’s 10-year government bond yield initially rose two basis points before slipping back to flat ,.
The Italy/Germany 10-year bond yield gap spiked to 263 basis points, its widest since April 26.
Italian shares fell into negative territory while the banking index was 1.7 percent lower at 1208 GMT.
The EC forecast domestic euro zone growth at 1.2 percent this year, slower than the 1.3 percent it predicted in February. It cut Italy forecasts to 0.1 percent, down from 0.2 percent and said the country’s deficit could widen further beyond the 3 percent ceiling set by the EU. (Reporting by Virginia Furness and Josephine Mason; editing by Sujata Rao)