Italy admitted meeting with the head of the biggest Chinese sovereign wealth fund CIC for talks, but denied on Tuesday asking Beijing to help reduce record borrowing prices by buying Italian bonds.

Bond auctions over the last few days have been overshadowed a marked lack of confidence in Italian debt, which has been supported in recent weeks by crisis purchases on the secondary market by the European Central Bank.

The news that Finance Minister Giulio Tremonti had met a Chinese delegation in the Italian capital last week, including the head of the China Investment Corporation, raised speculation Italy was pitching to obtain Chinese support.

The markets wavered throughout the day as rumours spread first over China's willingness to buy bonds and then over their refusal to humour Tremonti.

"We have not asked China for any aid in particular. Demand for state-issued bonds remains good," junior finance minister Antonio Gentile told journalists as the Italian FTSE Mib prepared to close for the day.

"There has been no special operation with China to buy bonds, but simply institutional meetings planned a while back to look at possible investments in Italy, particularly in the industrial sector, he said.

But Brazilian Finance Minister Guido Mantega said later on Tuesday that the emerging economies which make up the BRICS group will discuss possible aid to the European Union to help it confront its debt crisis.

It is unclear whether any support from Brazil, Russia, India, China and South Africa would bring Italy some much-needed respite.

China, with more than $3 trillion in foreign cash reserves, has begun spending its holdings in euros by investing in Greece, Portugal and Spain.

Beijing on Tuesday confirmed its confidence in the euro and signalled its willingness to increase its financial cooperation with Europe, but without indicating the scale of its commitment to the eurozone's financially troubled nations.

"China has a lot of assets in dollars, it is now looking to diversify and is very interested in Italy," Giuliano Noci, economics professor at Milan's business school MIP, told AFP.

"China is interested in the family jewels: it wants to invest in the environmental sector, in new technologies and particularly in fashion and household design," he said.

The fact that China's ICBC, the world's biggest bank by market value, opened branches in five European countries including Italy this year, was a sign of Beijing's "willingness" to invest, he added.

But Noci warned that China's interest in Italy was unlikely to boost confidence on "schizophrenic" markets.

The markets were being swayed by two factors, he said: "They want to see the Italian government act to boost growth and not just focus on spending, and they are worried about almost daily examples of the lack of European cohesion."

Earlier in the day, as confusion over China reigned, long-term prices for Italian debt plummeted on the secondary markets with bond yields, which move inversely to price, jumping to 5.742 percent, from 5.555 percent on Monday.

The closely watched spread between Italian and German bond yields hit a record high level of over four percentage points and the cost of insuring against a default by Italy also increased to unprecedented levels.

Italy's successful placement of three-month and 12-month bonds to raise 11.5 billion euros ($15.5 billion) on Monday was heavily overshadowed by high interest rates.

Italy has tried to reassure investors by announcing a new austerity package in August which should see the country balance its budget by 2013.

After seesawing by the government over the details, the package was finally given a green light by the Senate last week and should be passed by the Chamber of Deputies by Wednesday, Prime Minister Silvio Berlusconi said on Monday.

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