"We arrived at the unanimous conclusion that in Italy's current condition the government does not feel able to take on the commitment to offer the (financial) guarantee," needed to host the Olympics, Monti told reporters after a cabinet meeting.

Italy has passed a series of tough austerity measures in the last six months in an effort to balance the budget and head off a debt crisis that threatens the whole euro zone.

Monti said that trying to host the Olympics could "put at risk the benefits that we trust will be achieved by the sacrifices we have asked of Italians".

Rome Mayor Gianni Alemanno and the country's Olympic Committee CONI.L have been urging Monti for weeks to back the bid for 2020, 60 years after Rome last hosted the Games in 1960. His decision not to do so is likely to be controversial in a sports loving nation.

The International Olympic Committee had demanded that national governments supported the bids by candidate cities with a letter by February 15 offering a guarantee to plug any financial holes that could arise during the preparations for the Games.

Supporters of the bid had argued that hosting the Olympics would provide investment and growth to help Italy's chronically weak economy, which most analysts believe is already in a recession that will last for most of this year.

Rome had planned to use many of the same venues built for the 1960 Olympics if it had been awarded the 2020 Games. Doha, Madrid, Istanbul and Tokyo have also said they will bid.

The 2012 Olympics will be held in London this summer, while the venue for the 2016 Games will be Rio de Janeiro.

(Reporting By Massimiliano Di Giorgio and Gavin Jones, editing by Barry Moody)

• A Permanent Economic Emergency