* Full-year issuance target cut to around 460 bln euros
* Head of debt says it may be lowered further
* Italy to launch BTP Italia retail linker in week of Oct 20 (Adds comments)
By Valentina Za
MILAN, Sept 18 (Reuters) - Italy may further lower its gross issuance target for the year after already cutting it by some 10 billion euros to around 460 billion euros, the head of the country's debt management office said on Thursday.
Maria Cannata said Italy had nearly always managed to sell bonds for more than their face value this year enabling the state to book savings of "approximately 10 billion euros".
The full-year figure may fall further as Italy is using part of the funds raised at bond sales to allow local governments to pay back overdue bills to their suppliers. Cannata said that requests for such payments had been lower than anticipated.
"If the trend on the commercial debt repayments observed so far remains in place to the end of the year, the overall gross debt issuance target could be cut further," she said, speaking on the sidelines of a conference.
Cannata, tasked with managing one of the world's largest public debts, said Italy would launch its next bond tied to domestic inflation targeting small investors in the week of Oct. 20.
Italy first launched these bonds, dubbed BTP Italia, during the euro zone crisis to tap large domestic savings amid scant appetite for its debt abroad. It has since taken to issuing them twice a year -- in Spring and Autumn.
BTP Italia bonds have attracted record demand in the past, including from institutional investors. Cannata said the Treasury had studied a mechanism that would allow it to limit how much the latter would be allowed to buy.
Italy raised 20.6 billion euros from its last BTP Italia bond in April. That was just shy of a previous record set in November by a similar bond in what was the largest single bond sale by a European government.
"We don't have a target, except that it must absolutely be less than the last time," said Cannata.
In April, institutional investors snapped up 10.5 billion euros of the bond in just 40 minutes, with the Treasury meeting their requests in full.
"We'll see how the sale to retail investors goes and based on that we'll calibrate a ceiling for institutional investors," she said. "We've developed a mechanism that allows us to do just that and we'll see whether there is a need to use it."
Cannata said the current record-low levels of government bond yields could naturally curb demand. (Additional reporting by Giulio Piovaccari and Luca Trogni; editing by Crispian Balmer)