Italy austerity nears approval as pressure mounts/How Italy found an Asian saviour as China looks to boost image-14 Sep, 2011

14 Sep,2011, 04.16AM IST, Bloomberg

Italy austerity nears approval as pressure mounts/How Italy found an Asian saviour as China looks to boost image




SINGAPORE | ROME: China's status as the fastest- growing major economy and holder of the largest foreign-exchange reserves lured another bailout candidate as Italy struggles to avoid a collapse in investor confidence.

Italian officials held talks in the past few weeks with Chinese counterparts about potential investments in the country, an Italian government official said on Monday, adding bonds weren't the focus.

Finance Minister Giulio Tremonti met Chinese officials in Rome earlier this month, his spokesman Filippo Pepe said by phone on Tuesday. Chinese foreign ministry spokeswoman Jiang Yu, asked about buying Italian assets, said Europe is one of his nation's main investment destinations, without specifically mentioning Italy.

Italy joins Spain, Greece, Portugal and investment bank Morgan Stanley among distressed borrowers that turned to China since the 2007 collapse in US mortgage securities set off a crisis that widened to engulf euro-region sovereign debtors. Stocks rose on the potential Chinese investment in Italy even as previous commitments failed to have a lasting impact.

"It's a clear pattern of China's intention to help stabilise the euro area," said Nicholas Zhu, head of macrocommodity research for Asia at Australia & New Zealand Banking Group in Shanghai and a former World Bank economist. "The benefit to China is that it will help in the perception of host countries if China is viewed as a responsible stakeholder in the global community."

BOND AUCTION

Italy on Tuesday sold 3.9 billion of a new benchmark five- year bond at an average yield of 5.6%, compared with 4.93% the last time securities of a similar maturity were sold on July 14. Demand was 1.28 times the amount on offer, compared with 1.93 times at the previous sale. The yield on Italy's 10-year bond rose to 5.73% after the auction, pushing the spread with the equivalent German securities up 17 basis points to 400 basis points.

China Looks to Boost Image

The MSCI Asia Pacific index of stocks advanced 0.3% after the Standard & Poor's 500 index gained 0.7% overnight. For China, any purchases of European debt may allow the world's largest exporter to be seen as helpful as it rebuffs calls to allow its exchange rate to appreciate at a faster pace. The world's second-largest economy has amassed record currency reserves of $3.2 trillion by selling yuan to limit gains.