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September 16, 2011 > Italy confirms China talks amid bond help reports

Italy confirms China talks amid bond help reports

By Alessandra Rizzo, Associated Press

ROME (AP), Sep 13 - Italy confirmed it held talks with Chinese officials amid speculation Rome is looking to persuade Beijing to buy its bonds or invest in its companies, while premier Silvio Berlusconi flew to Brussels Tuesday to discuss the market turmoil.

The eurozone's third-largest economy is trying to convince investors that it can manage its debt load, find buyers for its bonds and avoid becoming the next victim of Europe's debt crisis.

News of the talks with China sent the Milan stock market higher on the open, following market tensions across Europe. But the rebound was shaky, with stocks fluctuating.

Bond prices likewise received little support from the news especially after the country had to pay a euro-era high interest rate in a five-year bond auction.

Though the Italian Treasury raised (euro) 3.86 billion ($5.27 billion) from the sale of five-year bonds, it had to pay an interest rate of 5.6 percent. That was the highest rate it has had to pay since the euro was established in 1999 and marked a fairly hefty rise from the previous auction's equivalent of 4.9 percent.

UniCredit bank gave a mixed review to the auction.

``While in terms of pricing we regard the auction as disappointing, demand was fine in our view, considering the current market environment and the high amount sold,'' said Chiara Cremonesi, a fixed-income strategist at UniCredit.

In Brussels, Berlusconi discussed the government's austerity package with European Union President Herman Van Rompuy, ahead of a key vote in the Italian parliament.

The austerity measures seek to slash spending by more than (euro) 54 billion ($70 billion) over three years. They will be put to a vote of confidence in the lower house of parliament for final approval Wednesday, Berlusconi said. The Senate has already cleared them.

The European Central Bank has bought Italian bonds in the open market to keep down their yields, which indicate the rates at which the country would be able to borrow on the market.

But Rome appears to be looking farther away, too.

A spokesman for Finance Minister Giulio Tremonti confirmed the meeting with the chairman of China Investment Corp., Lou Jiwei, but declined further comment.

The Wall Street Journal and the Financial Times said the meeting took place last week in Rome, without citing sources. Reports said the meeting also included officials of China's foreign currency regulator and the Cassa Depositi e Prestiti, an Italian government investment vehicle.

CIC was created in 2007 to invest a portion of Beijing's $3.2 trillion in foreign reserves, the bulk of which are held in safe but low-earning assets such as U.S. Treasury debt. The fund says it has assets of $409.6 billion, which includes stocks in a wide array of major Western companies.

``Europe will continue to be one of China's main investment markets,'' said Foreign Ministry spokeswoman Jiang Yu at a regular news briefing. ``We will also expand financial and economic cooperation and investment cooperation with European countries to jointly address the financial crisis.''

Beijing hopes eurozone countries will ``take effective measures to ensure the safety of China's investments,'' Jiang said.

Fiat and Chrysler CEO Sergio Marchionne, speaking from the Frankfurt Auto Show, said the possible involvement of China could be read in two ways: on the one hand, were Beijing to absorb some of Italy's debt, it would be a vote of confidence in Italy; on the other, the fact that Rome ``had to go there, in and of itself is not a good sign.''

Analyst Romeo Orlandi, an expert on China, echoed that assessment, saying the development was positive for Italy, but not without dangers.

``In principle it's a win-win situation: Italy needs money, China has the world's largest reserves. But this means that we must sell pieces of Italy to China,'' Orlandi said, adding that the talks may be an indication of how serious Italy's financial troubles are.

Orlandi said Beijing is usually cautious in its investment, and that the solution to Italy's woes does not lie in China. ``But we are in a situation where even a little crutch can be helpful,'' he said.

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Associated Press writers Joe McDonald in Beijing and Colleen Barry in Frankfurt contributed to this report.

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