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Italian borrowing costs rise in bond auction

Associated Press
Italian Prime Minister Silvio Berlusconi leaves after an EU summit in Brussels on Thursday, Oct. 27, 2011. A European Union official says the currency union's leaders have reached a deal with banks to take losses of 50 percent of their Greek bonds in a key move to solve the eurozone's debt crisis. (AP Photo/Yves Logghe)
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Italian Prime Minister Silvio Berlusconi leaves after an EU summit in Brussels on Thursday, Oct. 27, 2011. A European Union official says the currency union's leaders have reached a deal with banks to take losses of 50 percent of their Greek bonds in a key move to solve the eurozone's debt crisis. (AP Photo/Yves Logghe)

MILAN (AP) — Italy saw its borrowing costs rise to a euro-era high on Friday in a sale of euro7.9 billion ($11.09 billion) in government debt, a sign that investors remain nervous about the country's prospects despite a grand European plan to fight the debt crisis.

The interest rate demanded by investors to lend the Italian government 10-year money topped 6 percent in Friday's auction, the highest level since the launch of the euro, and surpassing the 5.86 percent paid in a similar debt auction a month ago. Demand exceeded the amount on offer 1.27 times, a relatively weak outcome.

The auction was the first test of investor confidence in Italy since European leaders agreed to boost an emergency bailout fund, get banks to take a loss on their Greek debt holdings and recapitalize European banks. Premier Silvio Berlusconi promised the EU new measures to promote growth in Italy, necessary to help cut the country's public debt, at 120 percent of GDP the second-highest in the eurozone.

Despite those measures, which seek to keep Italy from having to ask for a bailout, investors remained wary of buying the country's debt.

Disappointment at the results of the auction caused Italian bond prices to fall, sending the 10-year bond yield on the secondary market up to 5.95 percent.

Still, analysts said the auction yield was broadly in line with the secondary market, and not bad considering the pressure on Italy going into the auction.

The country has seen its borrowing rates rise as investors worried about the government's lack of commitment to reforms needed to cut debt and boost growth. The European Central bank for weeks has been buying Italian bonds to keep rates at manageable levels.

Analysts say the country's debt market will continue to be volatile until the government resolves its credibility on reforms and enforces the measures its promised to the EU this week.

The treasury auctioned off various other maturities of bonds on Friday, including euro3.08 billion in three-year bonds at a rate of 4.93 percent, up from last month's 4.68 percent.

The overall sale came up short of the euro8.5 million the government sought to raise.

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