Italy short-term debt costs halve at auction

MILAN: Italy's short-term debt costs halved at auction as a new austerity package and an injection of cheap long-term money from the European Central Bank won Rome some respite in thin year-end markets.

But analysts warned that market nerves could easily reignite and pointed to a tougher test, when Italy will sell up to 8.5 billion euros ($11.1 bln) of longer-term bonds, including three- and 10-year paper.

Still, the lowest six-month auction yield and strongest bidto-cover ratio since September added to a sense that some of the tension around the countries now at the center of Europe's debt problems had eased for a moment.

The outcome provided a temporary boost to European stocks <.EU> and the euro. Caution returned later in the session pushing Italian bond yields higher ahead of the sale. "This is the first piece of good news for Italy's bond market since the crisis erupted (for Rome) in July," said Nicholas Spiro of Spiro Sovereign Strategy.

"While today's auction was supposed to be the less challenging of this week's two sales given the shorter maturity of the debt on offer and the predominantly domestic buyer base, it's still a success."

Italy paid an average rate of 3.25 percent to sell 9 billion euros of six-month BOT bills, down from a euro lifetime record of 6.50 percent just a month earlier. It also sold 1.7 billion euros of 24-month, zero-coupon bonds, near the low end of its target range. The yield fell to 4.85 percent, from 7.8 percent a month ago.