Rome brushes off IMF aid call for Italy

The International Monetary Fund called on the eve of a European Union summit for both Spain and Italy to seek euro zone assistance to draw a line under the bloc's debt crisis, but Rome has rebuffed the idea and Madrid seems likely to apply alone.

The two-day Brussels summit will debate steps towards a single banking supervisor and proposals for closer euro zone integration, including German Finance Minister Wolfgang Schaeuble's idea of a super-commissioner with veto powers over national budgets.

No decisions are expected this week and there is no certainty as to when Spain will come off the fence.

Spain dodged a bullet yesterday when Moody's maintained its credit rating at investment grade, with a negative outlook, on the assumption that Madrid will trigger European Central Bank intervention soon to lower its borrowing costs.

Spanish and Italian bond yields fell in response, while the euro strengthened to a one-month high against the dollar.

IMF chief economist Olivier Blanchard told an Italian daily that the euro area was close to having all necessary measures in place to ensure Spain and Italy can keep borrowing in the markets while they implement painful economic reforms.

"In the short-term it would be crucial to have a plan for the two countries of the (euro zone) periphery," Blanchard told Il Corriere della Sera in an interview published on Wednesday.

"This would include not only an ongoing process of adjustment inside the countries but also a guarantee they can fund themselves. This would be conditional on them sticking to their commitments.

"We are almost there but not quite at that point yet," he said.

Senior Spanish and euro zone sources have indicated Madrid is preparing to request a precautionary credit line from the euro zone rescue fund in the coming weeks -- a move that could start ECB bond-buying once Spain agreed on policy conditions.

Italian Prime Minister Mario Monti said last week a Spanish request could be enough to calm markets. He has repeatedly said Rome does not need assistance for itself.