Italy raised 7.5 billion euros ($9.2 billion) euros in one-year bonds on Thursday at a sharply lower rate than in the last similar sale, the Bank of Italy said, indicating improved investor confidence.
The rate on the 12-month bonds was 2.697 percent compared to 3.972 percent in an auction on June 13. Demand for the bonds was 11.596 billion euros.
The short-term bond auction was a key test for Prime Minister Mario Monti who earlier this week did not exclude the possibility that Italy might eventually have to rely on European assistance to help lower its borrowing costs.
Italy won back confidence on the markets after Monti came to power in November 2011 and quickly imposed tough austerity and structural reforms but the markets have tensed recently amid wider concerns about the eurozone.
Italy returns to the markets on Friday for a medium and long-term auction.