Mauro Scrobogna, Lapresse) ITALY OUT, Associated Press
Italian premier Mario Monti gestures as he reads the government report on European Union policy, at the Senate in Rome Wednesday, Jan. 25, 2012.

MILAN — Italy easily raised €5 billion ($6.47 billion) in a pair of bond auctions on Thursday that saw a sharp drop in borrowing rates, a sign that investor confidence in the country is improving.

The sale was the first test of market sentiment since ratings agency Standard & Poor's cut Italy's credit rating by two notches on Jan. 13.

Italy paid an interest rate of 3.763 percent on €4.5 billion in two-year bonds, compared with 4.85 percent in a comparable auction in December. The borrowing cost for a new bond expiring in September 2014 was 3.2 percent.

UniCredit analysts said the sale was "positive" and an encouraging sign for upcoming auctions.

Nicholas Spiro, who heads a sovereign debt consultancy in London, noted the market was "particularly buoyant" after the U.S. Federal Reserve pledged to keep interest rates low until late 2014 to nurture the country's stubbornly slow economic recovery.

That will have encouraged traders to invest in riskier assets, such as bonds from economically weaker countries like Italy.

Italy has seen its borrowing costs ease in recent weeks, after yields on benchmark 10-year bonds pushed to the perilous 7-percent level last year. The 10-year bonds were trading at 6.04 percent on the secondary market after Thursday's auction.

The government has been trying to regain investor confidence by cutting public spending and reforming a sluggish economy.

Premier Mario Monti recently passed a €30 billion austerity package and announced liberalization measures.

He has sought a vote of confidence in the lower house of Parliament on a series of additional measures that include an increase in tax on cigarettes and funds for Italians who have been exiled from Libya. The vote of confidence was expected later Thursday, while a separate vote on the additional measures is expected by Tuesday.

Italy goes back to the bond markets on Friday, selling up to €8 billion in six-month bonds and €3 billion of bonds expiring in 11 months.

On Monday, Italy will try to raise another €8 billion in the sale of longer term paper.