MILAN, Nov 13 (Reuters) - Italy could complete almost all its borrowing for 2012 at a bond auction on Wednesday after ECB pledges and a big local bond sale calmed investor fears about one of the world's biggest sovereign debtors.
However, the nation's borrowing costs for three-year bonds are unlikely to fall at the sale, given investor uncertainty about how Greece's lenders will resolve differences over its bailout and whether and when Spain might seek to activate an ECB bond-buying programme.
The Italian Treasury will offer between 2.5 billion and 3.5 billion euros ($3.2 billion - $4.5 billion) of its BTP bond maturing Sept. 15, 2015, together with a total maximum amount of 1.5 billion euros in a 11-year bond and a 17-year bond it no longer issues on a regular basis.
With this sale Rome could reach 95 percent of its borrowing target for this year, according to Reuters calculations.
"I expect three-year borrowing costs to come roughly in line with the level seen at the mid-October sale," said Alessandro Giansanti, fixed-income strategist at ING.
"The yield on this maturity seems to have reached a balance after a strong rally," he added.
The Treasury paid a yield of 2.86 percent on the three-year bond one month ago, reversing a downwards trend which had taken the yield to 2.75 percent in September - the lowest in a sale since October 2010 - from a peak of 5.30 percent in mid-June.
Italian borrowing costs began their fall when European Central Bank chief Mario Draghi pledged in July to do whatever it takes to save the euro and later said the bank would buy unlimited quantities of bonds for states provided they requested conditional help.
The whopping 18 billion euros takeup by Italian investors of a four-year inflation-linked bond in October also eased concerns about how the euro zone's third biggest economy could support its debt burden.
But around current Italian yield levels, investors could in theory be tempted to take profits were it not for the risk of the ECB coming into the market, strategists say.
At the same time, the recent rally needs fresh fuel to push borrowing costs even lower, they say.
"The delay of a loan tranche for Greece together with ongoing uncertainty on a potential aid request from Spain are bringing a bit of risk-aversion on the bond market," said Chiara Cremonesi, fixed income strategist at Unicredit in London.
The Italian Treasury will re-open on Wednesday a bond with a maturity longer than 15-years for the first time since May 2011, but strategists expect the supply to be absorbed without too much pressure, since the amount offered is small.
The European Commission warned this week that Italy's public debt would rise to 128 percent of economic output next year, second only to stricken Greece in Europe, while Rome's efforts to bring down the budget deficit could stagnate in 2014.