* Italian bond yields up 14 bps this week
* Jitters about elections expected in March weigh
* Fitch reviews Portugal ratings
* German Bund yields at 3-month lows
* Euro zone periphery govt bond yields http://tmsnrt.rs/2ii2Bqr
LONDON, Dec 15 (Reuters) - Italian bonds were set for their worst week since July on Friday as talk of a March election renews focus on the political risks facing the euro zone's third biggest economy, while broader debt markets drew support from wrangling over a U.S. tax bill.
Italy's 10-year bond yields, trading at 1.78 percent , looked set to end the week around 14 basis points higher, which would be the biggest weekly jump since early July.
The Italian parliament will be dissolved between Christmas and New Year, a parliamentary source told Reuters earlier this week, opening the way for national elections in early March that look unlikely to produce a clear winner.
That has unnerved investors, sparking an underperformance of Italian bonds versus peripheral peers and top-rated Germany.
The premium investors demand for holding 10-year Italian bonds over German equivalents has risen around 15 basis points this week to its highest level since late October.
The jump "is a combination of the election jitters and upcoming supply in Italy," said Benjamin Schroeder, senior rates strategist at ING.
Borrowing costs across the euro area fell 2-3 basis points a day after the European Central Bank stuck to its pledge to keep money pouring into the bloc's economy for as long as needed.
Its outlook for inflation to remain below the ECB's near-2 percent target in coming years as well as renewed uncertainty over the path of U.S. tax reform boosted bond demand.
The tax bill needs a simple majority to pass in the Senate, in which Republicans hold just 52 of the 100 seats. No Democrats are expected to support it.
"The short-term driver of bonds is the doubts overnight about the backing of the U.S. tax bill," said Mizuho rates strategist Antoine Bouvet. "Also we saw yesterday that the ECB does not expect inflation to rise too much."
Germany's 10-year bond yield fell 3 bps to 0.288 percent, its lowest level in around three months.
Portugal was also in focus ahead of a Fitch Ratings review later on Friday that could give the once-bailed out country its second investment grade rating from a major agency. Portugal is rated BB+ by Fitch.
Since S&P Global on Sept. 15 lifted Portugal's rating one notch to BBB-, out of "junk" territory, investors have betted on further ratings upgrades that would allow Portugal to rejoin the big bond indexes.
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(Reporting by Dhara Ranasinghe; editing by John Stonestreet)