Monti said he would resign once Italy's budget for 2013 is approved on Saturday, raising concerns over who will steer the euro zone's third-largest economy out of debt, as it remains a focus of the three-year region-wide debt crisis.

"Italy (is) causing renewed pessimism in the euro area," said Lloyds strategists. "Monti could resign immediately unless he secures assurances that the 2013 budget will be approved which means that he will remain until the budget vote."

At 0854 GMT, the March gilt future was 6 ticks higher at 119.79, while the equivalent Bund was 22 ticks higher.

Ten-year gilt yields fel1 1 basis point to 1.73 percent , with their spread over the equivalent Bund yield slightly wider at almost 46 basis points.

"In the background remains the risk of a UK ratings downgrade following last week's Autumn Statement and some emergent realism that the UK is anything but a safe haven given a pernicious domestic economic, fiscal and overall structural backdrop, which may in turn have some repercussions for this week's medium-dated gilt auctions," said Monument Securities Marc Ostwald.

Investors digested a survey released overnight showing the number of permanent staff hired through recruitment agencies rose at the fastest rate since April 2011 last month, according to a survey.

Markets will also look towards a speech by Bank of England Governor Mervyn King in New York, due at 1715 GMT, for further clues on monetary policy after its committee meeting last week, as well as an auction of 3.25 billion pounds of a 2022 gilt on Tuesday.