HispanicBusiness

A successful auction Wednesday of Italian government bonds slashed Rome's cost of borrowing by half, according to initial data issued by Italy's treasury.

Six-month bonds were sold for an interest rate of 3.25 percent, half the level that Italy had to pay in November in a similar auction, dpa's business news wire, AFX, reported.

In what was interpreted as another sign of investor confidence in the ability of Prime Minister Mario Monti's government to tackle Italy's economic woes, demand was almost 50 percent higher than the size of the issue, which was 9 billion euros ($11.7 billion).

In a second auction involving two-year Italian government bonds, the effective interest rate was calculated at 4.85 percent, well below levels topping the 7 per cent levels reached recently amid market concerns over Italy's credit worthiness.

The auctions raised 10.7 billion euros for Italy's treasury.

Later Monti was scheduled to hold a cabinet meeting that was to focus on measures aimed at stimulating Italy's recession-threatened economy.

Earlier this month, parliament approved a package of austerity measures worth some 30 billion euros and which Monti, a former European Union commissioner, has said is necessary to save Italy from bankruptcy.

The premier is under pressure to tackle 1.9 trillion euros of public debt, which is 20 per ent greater than Italy's annual gross domestic product.

The austerity package consists mostly of new taxes aimed at filling state coffers to assist the government in meeting its target of balancing the budget by 2013.

However, Monti has said a "second phase" of government reforms will aim to introduce structural reforms to the economy, including liberalizing certain sectors and possibly privatizing some state-controlled assets.

Italy's economy, the eurozone's third largest, contracted by 0.2 percent in the third quarter and is expected to slide into recession next year.