Yields on 10-year Italian bonds fell below 5% for the first time since mid-August today in a sign of investor confidence on the secondary bond market after the ECB pumped hundreds of billions of euro to banks. The yield on Italy's benchmark bonds fell to 4.974% from 5.174% late on Wednesday. Spain's 10-year yield was also below 5%.

Italian benchmark rates peaked at 7.5% in mid-November when fears of a default by Italy reached their peak. Italy's €1.9 trillion debt mountain is the biggest in Europe.

The falling yields come a day after another massive liquidity boost by the European Central Bank, this time worth nearly €530 billion, after one in December helped ease pressure on weaker euro zone member states' borrowing costs.

Earlier, Spain raised €4.5 billion in a sale of long-term bonds, securing lower repayment rates in a market flush with cheap loans from the European Central Bank.

It sold bonds of two, three and five years' maturity for a total of €4.501 billion, fulfilling its target amid high demand, the Bank of Spain said in a statement. Demand was more than double the offer at €11.48 billion and the borrowing rates were lower than in the previous comparable sales.

The extra ECB cash has enabled European institutions to buy sovereign debt and pocket the higher returns.

The average yield on the two-year bonds was 2.069%, the Bank of Spain said, down from 3.589% on October 6. The yield on the three-year bonds fell to 2.617% this morning from 3.332% in a comparable sale on February 16.

On the five-year bonds, the yield fell to 3.376% from a 3.565% rate secured on February 2.

Economists expect Spain to enter recession this quarter after contracting in the last three months of 2011. The conservative government has gained some relief in recent weeks as Spain has seen its global financing costs decline and has used the friendlier conditions to borrow more than expected.

The country has already completed more than a third of its lending programme for 2012.

Italian jobless rate hits new high

Italy's unemployment rate hit a record 9.2% in January compared to 8.9% in December, official data showed today, as the country grinds through a painful recession.

The rate is the highest since Italy began recording monthly employment data in January 2004, the Italian statistics agency Istat said in a statement.

The seasonally adjusted data showed the number of people looking for a job rose to 2.312 million people in January - an increase of 2.8% over a month and 14.1% over a 12-month period.

The unemployment rate among young people aged between 15 and 24 also increased to 31.1% in January from 31% in December - just under a record of 31.2% reached in November 2011.

Unemployment has been on the rise in Italy since last summer when the economy began shrinking under pressure from the sovereign debt crisis and the austerity measures put in place to combat it.

The Italian economy contracted by 0.2% in the third quarter and by 0.7% in the fourth quarter, signalling the start of a recession that is expected to continue this year.

Prime Minister Mario Monti is planning an overhaul of the labour market by the end of March that he says would help lower unemployment.