(Recasts, updates prices)
By John Geddie
LONDON Dec 13 Italy's 10-year borrowing costs
fell to a one-month low on Tuesday, as UniCredit announced the
country's biggest ever share sale in the latest bid to clean up
its banking sector.
The premium over Germany that Italy pays to borrow in bond
markets fell to its lowest in over a month, having risen sharply
ahead of a Dec. 4 referendum.
The country's largest bank said it would raise 13 billion
euros ($13.8 billion) to bolster its balance sheet, while new
premier Paolo Gentiloni said his government would be ready to
take action to support the country's troubled banking
The fate of Italy's financial sector is intrinsically tied
to its government because banks are the biggest investors in the
Gentiloni presented an almost unchanged cabinet on Monday,
which analysts said was a welcome response to the political
upheaval of a constitutional referendum that unseated his
predecessor Matteo Renzi.
"The markets appear to be taking the developments in the
banking sector quite positively and the cabinet chosen by
Gentiloni has reassured investors," DZ Bank strategist Christian
Italy's new government will face confidence votes in both
houses of parliament this week. The small centre-right ALA party
that supported Renzi said it might not back the new government,
raising doubts over whether Gentiloni will have the numbers in
parliament to form a majority.
Italian 10-year government bond yields fell as much as 12
basis points to 1.878 percent on Tuesday, a
one-month low. It was on track for its biggest one-day fall
since Dec. 2, just before the referendum.
Compared to German equivalents, the premium Italy would pay
to borrow 10-year money in debt markets fell to 153 basis
points, the lowest in over a month.
German yields fell by a lesser extent - 4 basis points - to
0.36 percent, while most other euro zone yields
were 5-8 bps lower on the day.
Italian banking stocks gained 5 percent, hauled
up by a rise of almost 15 percent in UniCredit which
was set for its biggest one-day gain since 2010.
"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
(1 = 0.9423 euros)
(Reporting by John Geddie; Editing by Tom Heneghan and John