Market confidence in Italy has improved after Italian banks, awash with cheap ECB funds, bought domestic bonds at recent sales, but Rome still has to roll over a mountain of debt in the first quarter alone.

In January S&P downgraded Italy's sovereign debt by two notches to 'BBB+' with a negative outlook, citing concerns over the euro zone debt crisis.

"The first step for Italy will be to take the outlook from negative to positive. And this will depend on the trend of debt, growth and the impact of the reforms implemented by the Monti government," Myriam Fernandez de Heredia, S&P's managing director for sovereign ratings in Europe, the Middle East and Asia, told the newspaper.

"Reforms alone are not enough. It is important that they have a long-term impact on growth", she said.

"The timeframe of our negative outlook is two years. This means Italy's outlook can change over the next 24 months. If Italy goes in the right direction, we will take this first step," she said.

The arrival of the government led by Mario Monti had avoided a downgrade worse than the one S&P had carried out, she said.

Italian Prime Minister Monti's government has launched austerity measures and a deregulation package meant to cut costs and boost growth in the euro zone's third-largest economy.

Also in January, rating agency Fitch downgraded the sovereign credit ratings of Belgium, Cyprus, Italy, Slovenia and Spain, indicating there was a 1-in-2 chance of further cuts in the next two years.

Fernandez de Heredia said S&P was not negative on the euro and the euro zone.

"What disappointed us was the response of European policies to the crisis," she said.

(Reporting By Stephen Jewkes, Antonella Ciancio)

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