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Italy completing preparatory work for U.S. dollar bond issue - Treasury source

By Giuseppe Fonte and Elvira Pollina

ROME/MILAN, Jan 24 (Reuters) - Italy is completing the preparatory steps to issue its first dollar-denominated bond in more than eight years, a Treasury official told Reuters on Thursday.

With 201 billion euros ($228 billion) in bond redemptions this year, Rome is keen to find investors outside the euro zone where it can no longer rely on support from the European Central Bank which has just ended its asset purchase programme.

The official said the Treasury was close to finishing signing a number of currency swap contracts with investment banks which could potentially be involved in the sale of a foreign currency bond.

By signing such bilateral swap contracts, Italy makes it cheaper for banks handling such issues to hold a foreign currency position with Rome.

Lenders globally are under regulatory scrutiny to better manage the risk on their books.

Italy's public debt is second only to that of Greece in the euro zone relative to its economic output.

Confirming what a market source had told Reuters earlier, the Treasury official said the contracts with banks which are among primary dealers on Italy's debt were being signed.

Rome aims to launch the new bond "in the coming months and in any case in the course of 2019", the official said.

He added the Treasury was talking to investors in the United States and Asia regarding the deal.

In its debt guidelines for 2019, the Treasury said in December it was committed to diversifying its investor base through foreign currency issues, especially in U.S. dollars.

The Treasury added at the time it had gathered strong interest for U.S dollar bond last year, but market volatility has prevented it from launching such deals.

Foreign demand for Italian debt has shrunk since a populist coalition came to power last year pledging to ramp up public spending. Foreign investors sold a net 77 billion euros in Italian government bonds between May and November.

The market situation improved after Italy reached a compromise with European authorities over its 2019 budget at the end of last year, allowing the Treasury to place its first syndicated bond issue in a year.

Italy has two dollar issues outstanding on the market, maturing in 2023 and 2033 and worth $5.5 billion in total.($1 = 0.8815 euros) (Additional reporting and writng by Giulio Piovaccari in Milan, Abhinav Ramnarayan in London; Editing by Alison Williams)