For the second time in as many market days, Italy paid sharply higher borrowing rates in an auction Monday, as investors continued to pressure the eurozone's third largest economy to come up with reforms urgently.

The interest rate Italy had to pay to get investors to part with their cash for 12 years skyrocketed to 7.20 per cent, a full 2.7 percentage points higher than the last similar auction.

In the auction, Italy raised €567 million ($750 million US). While there were enough bids to cover the maximum sought of €750 million, the high borrowing rates persuaded the Italian Treasury to stick closer to the lower end of its planned issuance range.

The results will likely ramp up pressure on Premier Mario Monti, who is expected to announce additional austerity measures later this week. His government of technocrats is battling to persuade markets it can reduce debt and balance the budget by 2013.

A bigger test will come Tuesday when Italy plans to auction up to €8 billion ($10.6 billion Us) in debt of three varying maturities, including the benchmark 10-year issues. Last Friday, Italy had to pay sharply higher rates in a pair of auctions, stoking renewed fears that Monti was running out of time to convince markets that his government has a strategy to get a grip on its debts.

Driving market fears is the knowledge that Italy is too big for Europe to bail out. Given the size of its debts — Italy must refinance €200 billion by the end of April alone -- the government is depending on investors in the markets for money.

But when borrowing rates get too high that can fuel a potentially devastating debt spiral which could bankrupt the country and potentially bring down the euro.

Earlier Monday, the International Monetary Fund denied reports that it's readying a rescue fund for Italy.

The Italian daily La Stampa reported that the IMF was preparing a €600 billion ($794 billion US) bailout fund for Italy, which is struggling to manage its enormous public debt of €1.9 trillion, or nearly 120 per cent of GDP.

An IMF spokesman said that there are "no discussions with Italian authorities on a program for IMF financing."

And EU spokesman Amadeu Altafaj Tardio also said there have been no such discussion with the European Union.

"Italy has not asked for any amount of money," Tardio said.

Italy has seen its borrowing costs on its debt rise steeply in recent weeks — with yields on benchmark 10-year bonds topping the 7-per cent peril mark that has seen bailouts in other eurozone countries.

Monti was appointed to replace Silvio Berlusconi, whose fractious conservative coalition squabbled for months over measures to inject growth into the flagging Italian economy.

Monti has pledged a two-track strategy: urgent austerity measures followed by deeper reforms that will be painful for voters to accept. They include revamps of the pension system, doing away with a class of privileged closed professions that discourage competition, cutting political costs, simplifying bureaucracy and selling off state assets.