LONDON, Nov 29 (Reuters) - Italian bond yields fell to a one-week low and shares extended their gains on Tuesday after a Reuters report that the European Central Bank stands ready to buy more Italian bonds if a referendum this weekend rocks markets.
The ECB is ready temporarily to step up purchases of Italian government bonds if the result of Sunday's referendum sharply drives up borrowing costs for the euro zone's largest debtor, central bank sources told Reuters.
Italy's 10-year bond yield was down 8 basis points at 1.98 percent, having touched a fresh one-week low of 1.97 percent after the report.
Italian shares extended gains. The FTSE MIB hit its highest level for the day. The index was last up 1.6 percent, with Italian banks up 3.1 percent. The pan-European STOXX 600 rose >, and was up 0.2 percent, having been flat beforehand.
The euro hit the day's low against sterling of 84.80 pence after the report was published. (Reporting by London markets team, editing by Nigel Stephenson)