Italy has had to offer higher rates of interest on its short term government bonds.
Six-month bills recorded their highest yields since January.
Demand was strong for the eight billion euros worth on sale on Thursday, but the rate rose to 1.77 percent from 1.12 percent at a bill auction a month ago.
Rome is paying the price for market worries about feeble economies and large debt burdens in the eurozone.
A flood of low-cost loans from the European Central Bank helped push down Italian borrowing costs earlier this year. Italy’s six-month auction yields had been declining since hitting a euro lifetime record of 6.5 percent in late November and reached an 18-month low in March.
But budget and banking troubles in Spain have hurt market confidence in the eurozone’s peripheral economies, reversing the fall in yields, as investors worry that economic recession will hamper efforts to cut budget deficits.
Monti losing popularity
At the same time, Italian Prime Minister Mario Monti’s approval rating has fallen further, hit by higher taxes, controversial labour reform and a stagnant economy.
A poll showed that in April Monti’s government’s rating dropped five percentage points from March to 45 percent.
His personal approval rating fell by four percentage points to 51 from 55 percent, the IPR institute poll for La Repubblica survey showed.
Forty-five percent of those polled said they had great or sufficient overall trust in the government as opposed to 47 percent who said they had little or no trust in the government. Eight percent said they had no opinion.