Ratings agency Moody's has raised its outlook on Italy's credit rating to "stable" from "negative", the first signal of a possible change in sentiment towards the country's sovereign debt since the start of the euro zone crisis.
The move comes as Italy is slowly showing signs of emerging from its longest economic recession in 60 years and as centre-left head Matteo Renzi readies to become the country's premier amid pressure to carry out much-needed structural reforms.
In December, Moody's upgraded the outlook of Spain, which like Italy was hit hard by the sovereign debt crisis, to stable to reflect a rebalancing of its economy.
Moody's said it had improved its outlook on the euro zone's third-largest economy on the back of Italy's financial resilience, its reduction in borrowing costs and the diminished risk the state may have to use resources to help recapitalise its banks.
"Italy's robust debt affordability is underpinned by historically low funding costs," Moody's said as it confirmed its "Baa2" rating on Italy.
On Thursday Italy sold three-year debt at the lowest yield since the introduction of the euro. On the secondary market on Friday, 10-year bond yields held near eight-year lows of around 3.7 per cent, about half the yield seen in late 2011.
Dietmar Hornung, Moody's associate managing director for the sovereign risk group, said the risk for Italy's finances deriving from its banking sector was more limited now that its largest bank had strengthened its capital base.
"As long as the recapitalisation needs that crystallise on the government's balance sheet stay below €20 billion (HK$212 billion), this would by itself unlikely move back the outlook back to negative," he said.