Shortly before 1500 GMT, Italian 10-year bonds were trading at 5.976 percent on the secondary market compared to 6.205 percent at Wednesday's close.

Economists generally consider rates of return above six percent in slow-growth and low-inflation economies as unsustainable.

The yield on Italian 10-years alarmingly soared over seven percent in early January on concerns that the government would not be able to raise funds on the market at affordable rates and eventually be forced to seek a bailout like fellow eurozone members Greece, Ireland and Portugal.

Rome is struggling with a colossal debt of 1.9 trillion euros, around 120 percent of the country's gross domestic product, and has said it would issue bonds worth almost 450 billion euros this year.

Earlier Thursday, Italy issued 5.0 billion euros ($6.57 billion) in medium-term bonds at much lower interest rates. It was the third positive market test since the start of the year.

"Indications from the trading floor suggest there have been important purchases from foreign investors," said Sergio Capaldi, bond strategist from Intesa Sanpaolo.

Prime Minister Mario Monti's government, which took over power after former premier Silvio Berlusconi was ousted under intense market pressure, "has been able to claw back a bit of confidence abroad," he said.

Italy, which has probably fallen into recession, faces another market test Friday when the treasury is to issue 11.0 billion euros in short-term bonds, and on Monday, when it hopes to raise 5.5 to 8.0 billion euros in medium to long-term bonds.