Yields on benchmark 10-year Italian bonds dropped to 5.95 percent, a four-week low, as European leaders worked several angles to rescue the euro.
Italian Prime Minister Mario Monti's austerity budget proposal, a $40.17 billion package of spending cuts helped boost investor confidence. In turn, French President Nicolas Sarkozy and German Chancellor Angela Merkel held a lunch meeting and announced agreements to bring to a eurozone summit on Friday, The Wall Street Journal reported.
The agreements included sanctions for eurozone members that do not comply with fiscal guidelines and a proposal to accelerate implementation of the European Stability Mechanism from 2013 to 2012.
In Rome, Prime Minister Monti's budget proposal included no income tax hikes, but increased the sales tax by 2 percent starting in July 2012, created a tax on luxury items and added a property tax that was considered by former Prime Minister Silvio Berlusconi's administration, ANSA reported.
The package does not ignore economic growth, offering tax breaks on investments and for companies that higher young workers.
It is toughest on pensioners, ANSA said. The minimum number of years of work required before drawing a pension will be raised from 40 to 42 years for men and 41 for women. The retirement age will be raised from from 65 to 66 for men and from 60 to 62 for women.
Monti rallied support for the program, calling it an effort to "Save Italy."