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Italian bonds to fail

to break 104.70 top

LONDON: Italian bonds are expected to attempt, but fail, to break through resistance at the August 24 high of 104.70, technical analysts said.

"We favour the upside, but the going will be difficult when we get to the higher numbers," said Raynard Cheng, technical analyst at First Chicago in London. "An upside break will give an objective of 105.30."

He said 105.30 is the 50 percent Fibonnacci retracement of the two-year decline started at the beginning of 1994.

September BTP futures were down 0.68 at 103.55 by 0842 GMT, after reaching a high of 103.65 earlier in the session.

Analysts said the momentum has faltered in Italian bonds, as traders are looking for signs the government's 1996 budget will be approved before an election is called.

The leader of the PDS, the Democratic Party of the Left, over the weekend said the alternative to cross-party support for the budget is an early election.

"Concerns about the electoral timetable will remain until some clarity emerges," said a bond analyst at a Swiss bank in London. "If the budget is under threat, the downward pressure will continue."

He said attention is also on the fortunes of the lira.

Traders said the Bank of Italy has been active in the market, selling marks for lire, after the plunge in the currency led futures lower yesterday.

On the downside, support for BTPS at 103.20 is just below lows from mid-august. It is expected to remain intact.

"We've seen quite a lot of buying interest around the 103.20 level," said Cheng. "But if it goes, the downside breakout target is 102.65, the low on August 15."

At the short end, December and September Eurolira contracts are slightly weaker on the day. September was down 0.05 at 89.67 at 0911 GMT, December was down 0.04 at 89.68.

Support for September futures is at 89.55, with resistance at 89.90. A break through 89.90 will target 90.00, analysts said.-Reuter