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LONDON, Dec 13 (Reuters) - The premium Italy's pays to borrow in bond markets compared with benchmark Germany fell to its lowest in over a month on Tuesday after new Prime Minister Paolo Gentiloni unveiled an almost unchanged government and Unicredit announced a share issue.
Italy's largest bank said it would raise 13 billion euros to clean up its balance sheet, and the Treasury signalled it was ready to pump capital into ailing Monte dei Paschi. Both developments reassured investors, analysts said.
"The uncertainty of a major government reshuffling has been removed and investors appear to be cheering developments in the banking sector as well," Commerzbank strategist David Schnautz said.
Italian 10-year government bond yields fell 7 basis points to 1.94 percent, narrowing the gap with German equivalents to 155 basis points -- its tightest since early November, according to Reuters data. (Reporting by John Geddie, editing by Nigel Stephenson)