GLOBAL MARKETS-Italian tensions in focus as emerging assets calmer
* Italian stocks, bonds fall on Berlusconi threat
* U.S. housing data tempers September Fed tapering view
* Stocks mostly higher, gold briefly tops $1,400 an ounce
* Currency markets subdued, dollar finds support after dip
LONDON, Aug 26 (Reuters) - Italian shares and bonds fell on Monday after a threat from Silvio Berlusconi's party to bring down the government while a weaker dollar and lower U.S. yields offered some relief to battered emerging markets. The dollar slipped against the yen and gold traded near 11-weak highs, briefly topping $1,400 an ounce after weak U.S. housing data on Friday added to uncertainty over when the Federal Reserve would start unwinding monetary stimulus, much of which has flooded into developing markets. Members of Berlusconi's centre-right People of Freedom (PDL) party warned on Sunday they would force early elections if their centre-left coalition allies voted next month to expel the former premier over a tax fraud conviction. Italian shares opened down more than 1 percent, leading the broader euro zone stock market lower, and the country's government bonds fell, taking Spanish and Portuguese bonds down with them. "If you have new elections now there is a high risk you would not have a majority government so that is why we are seeing a widening of spreads in the periphery," said ING rate strategist Alessandro Giansanti adding the timing was not ideal considering Italy is set to sell bonds this week. Emerging markets, meanwhile, were relatively calm after the turmoil of last week. (for emerging market shares ) Share indexes in India made ground though there were some more mild falls in Indonesia and both countries' currencies weakened again against the dollar.. India, Indonesia and Brazil have scrambled to try to stem the destabilising outflows that have sent their currencies sharply lower, with the rupee skidding to record lows recently. Global central bankers at the Fed's annual Jackson Hole policy conference were warned over the weekend that financial stability is at risk as ultra-easy policies that have flooded the world with cash are slowly unwound.
'MONETARY MORPHINE' John Hardy, head of FX strategy for Saxo bank, said the Fed was bound to take measures if the turmoil in markets over its stimulus scale-back didn't settle down. "The evidence we have seen since 2008 is that every time things get a little ugly the Fed steps in with more liquidity, so they will do what ever they have to do," said Hardy. "Markets have been dependent on monetary morphine for forever so why not just have another big hit of it." Data out on Friday showed sales of new U.S. single-family homes fell to their lowest in nine months, raising doubts about whether the Fed can afford to start to pull back next month and giving investors an excuse to buy back beaten-down assets. Against the yen, the dollar traded at 98.56 off Friday's peak of 99.15, while the euro bought $1.3382, having climbed as high as $1.3410. Spot gold, which as an inflation hedge has benefited from the global flood of liquidity, briefly popped above $1,400 an ounce for the first time since early June, extending Friday's 1.5 percent rally. It last stood at $1,396.54. U.S. crude was bid at $106.91 a barrel, while Brent crude extended gains above $111 a barrel as rising tensions in Syria added to concerns of increased unrest in the Middle East that could disrupt supply. In Shanghai trading, copper rose to its highest in over four months on optimism about global growth though traders said the moves were being amplified by the fact London markets were closed for a public holiday.