Prime Minister Silvio Berlusconi speaks to parliament on Wednesday to try to calm fears over escalating market turmoil that has brought Italy to the edge of a Greek-style financial crisis.
With yields on Italian 10 year bonds at over 6%, a level largely seen as unsustainable, the premium that investors demand to hold Italian bonds over benchmark German debt were around euro lifetime highs at 386 points.
Italian bank stocks, which have been pounded in recent days, opened lower, continuing a slide that has seen shares in the two biggest banks drop more than 20% since the start of July. The main Milan stock market index was down at a 27-month low.
On Tuesday, Italian finance officials held an emergency meeting after concerns over Italy's public debt sent borrowing costs to record levels. They issued a statement afterwards saying that the financial system was solid.
Berlusconi, who has been largely silent over the past weeks, is due to address the lower house at 3:00 p.m. (1300 GMT) and the Senate at 5:30 p.m. but it is not clear whether he will have any significant new measures.
On Tuesday, yields on Spanish and Italian five-year bonds briefly reached parity for the first time since March 2010, a concrete sign markets were beginning to regard Italy in the same way as debt strugglers Spain, Portugal or Greece.
However Italy's economy would be far too big for the kind of assistance European authorities have offered to prop up Greece and Ireland and the turbulence has caused alarm across the euro zone and beyond.
MEASURES
Italian newspapers said that Berlusconi may announce some smaller moves to reassure Italian voters including some minor tax changes or easing of extra costs for health care.
There was also some speculation that he may bring forward some measures already announced in the 48 bln euro ($68 bln) package of austerity measures passed in parliament last month to bring Italy's budget into balance by 2014.
"The most urgent measure, as has been stressed on a number of times in these pages, is bringing forward moves to balance the budget," Italy's leading daily, the Corriere della Sera, said in a front-page editorial.
Despite being passed with unprecedented speed with the cooperation of the centre-left opposition, the austerity package has been criticised for holding back the bulk of cuts until 2013, after the scheduled date for new elections.
Despite a public debt equivalent to 120% of GDP, Italy has until recently stood apart from the euro zone crisis thanks to a relatively modest budget deficit, high private savings and a conservative financial system.
However concerns about the struggling centre-right government's ability to revive Italy's stagnant economy following warnings from credit ratings agencies have changed perceptions markedly in recent weeks.
Uncertainty over the position of Economy Minister Giulio Tremonti, who has appeared estranged from Berlusconi and has been weakened by a scandal affecting a close former aide, has also unsettled investors who have long seen him as an anchor of stability.
