* Italy draws $4.5 billion of demand for U.S. dollar bonds * Markets subdued before U.S. Federal Reserve meeting April 27 (Reuters) - Euro zone bond investors’ focus turned to issuance on Tuesday as Italy revisited the U.S. dollar bond market a day after its benchmark yield hit a seven-month high. Rome, which has been diversifying its funding sources after a sharp rise in borrowing needs due to the coronavirus pandemic, received $4.5 billion of initial demand for a sale of three and 30-year U.S. dollar bonds via a syndicate of banks on Tuesday. Analysts at UniCredit expect the bonds will raise three to five billion euros, based on past issuance. It is Italy’s third venture into the dollar debt market since October 2019 when - in the first such issuance since 2010 - it raised $7 billion from five, 10 and 30-year dollar bonds. Another $3 billion, five-year dollar bond followed last November. Italy will also raise up to 5.5 billion euros in an auction of a short-term BTP and five and 30-year inflation-linked bonds on Tuesday. The sales come at a time of upward pressure on Italian yields. On Monday The benchmark 10-year yield rose to its highest since October 2020, and the risk premium on 30-year Italian bonds rose to their highest since this February. On Tuesday, the 10-year yield was up around one basis point at 0.81% at 0755 GMT. But while the country cut its economic growth forecast for the year and its budget deficit will surge to a 20-year high due to the pandemic, positive momentum is building around its recovery prospects. It unveiled a 222 billion euro economic recovery plan on Monday, after reaching a deal with the European Commission on the use of the COVID-19 recovery fund. Ratings agency S&P affirmed Italy’s BBB rating - the highest among the three main rating agencies - with a stable outlook last week, expecting a “solid economic recovery” during the second half of the year given accelerated vaccinations and additional fiscal stimulus. In addition to Italy, Germany will sell a new seven-year bond via auction on Tuesday. There was little clear market direction ahead of the U.S. Federal Reserve meeting starting on Tuesday. No major policy changes are expected but investors will pay close attention to Chairman Jerome Powell’s comments. Germany’s 10-year yield, the benchmark for the euro area, was unchanged at -0.26%.