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Italian bond spread rises above 300 points

Weak demand at 10-year bond auction

30 August, 20:00
Italian bond spread rises above 300 points (ANSA) - Rome, August 30 - Italian bond spreads rose above 300 points against the German bund on Tuesday after weak demand at the first auction of 10-year securities since the European Central Bank began buying the nation's debt.

Italy's 10-year yields climbed to a three-week high of 5.16% before falling to 5.14%, after Premier Silvio Berlusconi bowed to demands from his coalition ally to revamp the government's 45-billion euro austerity package.

Milan stocks fell 0.23% with the FTSE Mib index closing 15,106 points. Earlier in the day the Bank of Italy warned that the Italian government's updated austerity measures were essential but would slow the country's economic recovery.

"The move to resolve the deficit and balance the budget by 2013 will slow growth but there is no alternative," Ignazio Visco, the bank's deputy director-general, told a Senate committee.

The government changed the austerity package approved by the cabinet two weeks ago after a meeting between Premier Silvio Berlusconi, Giulio Tremonti, his Economy Minister, and coalition ally and leader of the Northern League, Umberto Bossi, outside Milan on Monday.

The new version of the package, which is due to face a vote in the Senate next week, drops the so-called "solidarity tax" on higher incomes, and proposes halving the number of MPs, changes to pensions, and increasing measures to stop tax evasion.

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