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Moody's upgrades outlook for Italy's government bond rating to stable on improved finances

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Moody's Investors Service on Friday raised the outlook on Italy's government bond rating to stable from negative, citing improved financial strength in the European country.

It reaffirmed Italy's bond rating at Baa2, its second-lowest investment grade, and its Prime-2 debt ratings, which is considered a moderate credit risk.

The rating agency said that it expects the government's debt-to-gross domestic product ratio to level off in 2014 as economic growth modestly resumes. It pointed to Italy's strong government bond market, which is one of the largest in Europe, as an indicator of strength.

Moody's also said that that the government's balance sheet is looking less risky, citing lower risks tied to its banking sector as the capitalization in that sector has stabilized.

The rating agency said that the recent resignation of Prime Minister Enrico Letta and the expectation that Matteo Renzi, leader of Letta's Democratic Party, will head a newly formed government does not alter its expectations. Letta, Italy's premier, announced his resignation after losing key party support.

A report from the Eurostat statistics office said Friday that Europe's economy is growing faster, rising 0.3 per cent in the October-December period from the previous quarter. That was slightly more than expected and up from the third quarter's 0.1 per cent.

The report said that growth was unexpectedly strong in the bloc's major economies like Germany, France and Italy — which saw its first growth since 2011. However, Europe's recovery remains tepid by global standards.

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