Italy borrowing costs rise as euro crisis deepens

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(Reuters) - The main measure of Italy's borrowing costs broke above 6 percent for the first time in 14 years before easing back on Tuesday as the euro zone's third-largest economy was sucked into the bloc's debt crisis.

Italian 10-year yields at one stage soared more than 30 basis points on the day to leap above 6 percent -- the highest since 1997 -- getting closer to the 7 percent level most market players see as being unsustainable for Italy's borrowing costs given its huge debt pile.

The cost of insuring Italian debt against default also rose as prolonged efforts to agree a second bailout for Greece, where the crisis began, eroded investor confidence in policymakers' ability to hold the bloc together.

Analysts said confusion over the Italian government's deficit-cutting 40 billion euro ($57 billion) austerity package and fears it may be watered down by parliament are adding to investors' concerns and making the country an easy target for those looking to hedge against the sustainability of the euro.

"Basically we believe Italy is being used as a liquid proxy on a euro-break up view," Credit Suisse First Boston analysts said in a research note.

Cont'd at the link: http://www.reuters.com/article/2011/07/12/us-italy-markets-idUSTRE76B2HQ20110712