Italy borrowed €6.5 billion with a 12-month bond issue today but had to pay increased rates, the Bank of Italy said.

Rome continues to come under fire from investors spooked by the debt crisis.

Interest rates for the one-year bonds rose to 3.972% compared to the 2.34% paid in an auction on May 11.

Italy is battling to deny rumours that it might be forced to follow Spain in asking for a bailout.

While there was sustained investor demand - the treasury was able to raise the entire sum it had aimed for - the peak in rates signifies a severe drop in confidence in Italy, with fears that even a 12-month investment is now a risk.

While Monti managed to regain market confidence after taking over from Silvio Berlusconi at the end of last year, investor concerns have increased steadily in recent weeks amid fresh turmoil on the markets.

After Spain's request for EU help to rescue stricken banks and ahead of a momentous vote in Greece which could result in the country leaving the euro zone, Italy's 10-year government bond yield leapt over the warning 6% barrier.

Monti told the cabinet today ahead of the bond session that he was relaxed about Italy's standing on international markets at a "crucial" time for the eurozone, despite rising crisis contagion.

The former EU commissioner said that Italy had a lower public deficit and unemployment rate than many other EU countries, and "stable" banks which were not exposed to the real estate crisis threatening Spain.

German Finance Minister Wolfgang Schaeuble also tried to pour oil on troubled waters by insisting Italy was not in danger of getting pulled further into the euro zone debt-crisis.

"If Italy continues on the path Monti has set out on it will not be in danger," Schaeuble said in an interview with La Stampa newspaper.

Monti yesterday insisted that Rome was not at risk of contagion and "will not need a bailout even in the future." He called on the markets and financial observers "not to be governed by cliches or prejudices."

But economic observers have said Monti will have to act fast to reassure those who think Italy's public debt mountain of €1.9 trillion and its struggle to boost growth, means there is a high risk of debt-crisis fever.