Feb 24 (Reuters) - Yields on benchmark German government

bonds rose on Monday as the outcome of German general elections

supported expectations for pro-growth policies, but did not lift

the uncertainty around the reform of the debt brake to increase

fiscal spending.

Germany's likely next chancellor, Friedrich Merz, will start

trying to form a coalition government on Monday, after his

conservative bloc won a national election that saw far-right and

far-left parties hoover up support from disaffected voters.

"We expect a two-party coalition between the (conservative

bloc) CDU/CSU and the centre-left SPD to enact some pro-growth

supply-side reforms," said Holger Schmieding an economist at

Berenberg. He said populist parties from the political fringes,

such as Alternative for Germany (AfD) and The Left, "can veto

any loosening of the debt brake enshrined in the constitution."

Investors have pinned a lot of hope on a new government

reforming the so-called debt brake to increase fiscal spending

and boost the economy, especially in light of the pressure from

the U.S. government for European countries to pay more for their

own defence.

Germany's 10-year bond yield, which serves as

the benchmark for the wider euro zone, was up 2 basis points

(bps) at 2.48%.

The 2-year yield rose 1.5 basis points (bps) to

2.12%.

Italy's 10-year yield was up 3 bps at 3.59%. The

yield gap between Italian and German yields was at

106.5 bps.