Lagarde: Political clarity needed in Italian crisis

Christine Lagarde was speaking during a visit to China, as Rome politicians were scrambling to find a replacement for Berlusconi, who has said he will step down when parliament approves reforms aimed at placating the markets.

"No one exactly understands who is going to come out as the leader. That confusion is particularly conducive to volatility," Lagarde told a news conference in Beijing .

"So from my perspective, political clarity is conducive to more stability and my objective from the fund's point of view is better and more stability."

Italian 10-year bond yields rose above 7 percent on Wednesday, a level most market economists consider unsustainable for financing debt of more than 2 trillion euros, raising fears of a break-up of the euro zone.

The former French finance minister declined to comment on reports that German and French officials have discussed plans for a radical overhaul of the European Union that would lead to a more integrated and potentially smaller euro zone.

Lagarde also said she believed Chinese authorities were prepared to let the yuan appreciate further, as demanded by many U.S. and other western politicians who accuse Beijing of holding its currency artificially low to give an unfair advantage to its exporters.

"My understanding is that the authorities are prepared to let that appreciation continue in the months and years to come," she said.

"Certainly from our perspective, with the goal of stability and the solid, balanced and sustainable growth that we pursue, clearly that's welcomed and encouraged."