ROME - Prime Minister Silvio Berlusconi will address parliament on Wednesday seeking to calm escalating market fears that Italy may be dragged into a Greek-style financial crisis that would threaten the euro zone.

Italy's Economy Minister Giulio Tremonti met the chairman of euro zone finance ministers, Jean-Claude Juncker, for emergency talks as the yields on Italian and Spanish 10-year bonds flirted with new 14-year highs.

Financial market tensions have risen sharply since early July as attention focused on splits in Berlusconi's centre-right government and in particular on discord between the premier and Tremonti, the minister seen as the anchor of budget stability.

A 48-billion-euro austerity package, passed in record time last month and intended to keep the government on track to bring the budget into balance by 2014 and control Italy's huge public debt, has failed to calm market fears.

Worries have focused in particular on the fact that a large part of the spending cuts and tax measures will not take effect until after the next scheduled elections in 2013 and will do little to stimulate Italy's chronically sluggish economy.

Berlusconi, weakened by scandals and largely silent over the past weeks, delayed his address to the lower house, originally scheduled for 3.00 p.m. (1300 GMT), to 5.30 p.m. after the close of the Milan bourse.

It is not clear, however, whether he will have any major new structural reforms or one-off tax measures to announce.

"In the short term, we're not expecting any new budget correction," one government source said, but added: "Naturally, if it turned out to be necessary, there wouldn't be any particular problem about bringing forward some measures to before 2013."

With Spain also under market attack and doubts growing about the stability of the whole euro zone, the problems are in any case already beyond the capacity of a single government to fix.

"Italy is paying for factors related to the euro zone crisis and the broader European situation rather than domestic factors," said Paolo Mameli, an economist at Intesa SanPaolo Bank in Milan. "Frankly, bringing forward budget correction measures that go into effect mainly from 2013 to at least 2012 may not be able to placate market tensions."

Yields on Italian 10-year bonds are now over 6 percent, a level seen as unsustainable and the premium that investors demand to hold Italian bonds over benchmark German debt has hit euro lifetime highs.

Italian bank stocks, which have been pounded in recent days, rebounded from a slide that has seen shares in the two biggest banks drop more than 20 percent since the start of July. The main Milan stock market index pared losses in volatile trading after hitting a 27-month low earlier on Wednesday.

FINANCIAL SYSTEM SOLID

With Italy, the euro zone's third largest economy, now being sucked into the debt crisis, alarm has spread at the prospect of a wider regional emergency which would overwhelm bailout measures created to help troubled smaller countries like Greece.

European Economic and Monetary Affairs Commissioner Olli Rehn, who spoke to Tremonti by telephone on Wednesday, sought to provide reassurance with a statement saying Italy was on track to ensure both sustainable growth and budget consolidation.

Berlusconi is due to meet employers' groups and unions on Thursday to try to thrash out a plan to stimulate an economy which has been among the most sluggish in the world over the past decade.

Despite a public debt equivalent to 120 percent of gross domestic product, Italy has until recently stood apart from the crisis thanks to a relatively modest budget deficit, high private savings and a conservative financial system.

However, concerns about the government's ability to overcome internal divisions and revive the stagnant economy have changed perceptions markedly in recent weeks, after warnings from credit ratings agencies that they could cut Italy's credit rating.

"For Italy, there is a problem with the weak credibility of the political system," said Guido Brignone, former president of AIAF, the analysts association, and currently a consultant for various Italian investment funds.

"The market thinks that what has been done is not very effective from the technical point of view. The present government is not in a position to take strong measures."

On Tuesday, finance officials from the government and the Bank of Italy held an emergency meeting after concerns over Italy's public debt sent borrowing costs to record levels.

They issued a statement pointing to tensions on world markets and declaring the financial system was solid but markets may not be satisfied with similar remarks from Berlusconi.

"As the stakes are very high, it would be highly disappointing and not wise, if the prime minister were to blame only external factors and international speculation as the main factor responsible for the current market situation," UniCredit analyst Chiara Corsa said in a note.