Italian President warns on 'alarming' debt signals

Italian President Giorgio Napolitano urged swift action to strengthen planned austerity measures on Monday, saying a severe market selloff was a clear warning that markets had lost confidence in Italy.

"No one can underestimate the alarming signal from today's surge in the differential between the prices of Italian public debt instruments and those of Germany," Napolitano said in a statement.

"It is a sign of the persistent difficulty in regaining trust as is urgently and indispensably required," he said, adding that he urged all parties not to block measures needed to restore credibility.

He said there was still time to insert measures "capable of reinforcing the efficiency and credibility" of the austerity package passed in parliament last month which is currently undergoing revision in the Senate.

The call to action from Italy's head of state came after a day of rising pressure on the euro zone's third largest economy as financial markets have lost faith in government pledges to bring its finances under control.

Yields on Italian 10 year bonds climbed to nearly 5.6 percent on Monday, approaching the levels of more than 6 percent seen before the European Central Bank began buying Italian bonds last month in a bid to hold down its borrowing costs.

The premium investors demand to buy Italian bonds rather than benchmark German debt widened to 369 basis points, more than 30 points higher than the equivalent Spanish spread as Italy has moved firmly to the centre of the euro zone crisis.

Debate on the austerity package is due to begin on the floor of the Senate on Tuesday afternoon with approval expected before the end of the week when the package moves to the lower house. Final approval is expected by Sept. 20.