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Italy's borrowing costs drop despite political uncertainty; home sales dive in stuck economy

FILE -- In this file photo taken at Chigi Palace government's office in Rome, on Dec. 6, 2012, Italian Premier Mario Monti gestures arrives for a news conference at the end of a cabinet meeting. Premier Mario Monti told the Italian president Saturday, Dec. 8, 2012, he plans to resign following the sudden loss of support from Silvio Berlusconi's party, paving the way for early elections a year after the economist helped pull the country back from the brink of financial disaster. (AP Photo/Riccardo De Luca)

ROME - Italy shrugged off on uncertainty about its political and financial future Wednesday when it easily sold 6.5 billion ($8.45 billion) in 12-month bonds at lower interest rates.

The Italian Treasury reported that the interest rate on the bonds was 1.46 per cent, down from the 1.76 per cent paid in the last such offer in November. Demand was nearly double the amount on offer.

Italy's political foundations have been shaken after Premier Mario Monti's decided over the weekend to resign a few months earlier than his term's end after Silvio Berlusconi's party yanked its support. The decision will likely force elections to be held in February, about two months ahead of schedule.

Monti was brought in by Italy's president to replace Berlusconi last year after investors lost faith in the country's efforts to get a control of its finances, sparking fears of a Greek-style sovereign debt crisis. Monti, an economist, and his unelected government of technocrats have followed a strict austerity agenda, including pension reform, spending cuts and higher taxes. This has widely convinced fellow European leaders and investors that Italy is steadily returning to a more stable financial footing.

But while Berlusconi's party at first supported Monti's government, the media mogul abruptly changed face, and started blaming the severe austerity for failing to pull Italy out of its stubborn recession.

Berlusconi announced over the weekend that he is planning to run for what he hopes is his fourth term as premier in spite of opinion polls that show his popularity is sagging with voters.

Monti insisted this week that he is concentrating on making the most of his remaining time in office and isn't thinking about running about office for now.

In a speech in Rome Wednesday, Monti insisted that efforts to regain Italy's credibility abroad and in financial markets were the best prescription for jump-starting the ailing economy.

Encouraging the country's industrialists to keep up exports, Monti said that "a credible country is the best ally for those who have the courage to push the frontier of their own activities beyond national borders."

In a further sign of Italy's stagnant economic climate, the national statistics bureau ISTAT said that home sales slumped more than 23 per cent in the second quarter of this year compared with the same period a year earlier.


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