Italy's economy posted a modest acceleration in its chronically low growth in the second quarter, while a slump in output in June added to signs the upturn is already over and growth will slow in the second half.

Stronger growth is a key element to Italy's efforts to reduce its budget deficit and the high public borrowing that has put it in the firing line in Europe's debt crisis.

Gross domestic product still rose just 0.3 per cent between April and June, in line with expectations after 0.1 per cent increases in each of the previous two quarters, national statistics institute preliminary data showed on Friday.

"I doubt that markets will consider today's GDP data as any reason to change their negative sentiment on Italy," said Citigroup analyst Giada Giani.

"There will certainly be a slowdown in the second half on the basis of purchasing managers indexes that have weakened sharply, and other leading indicators.

The data matched the median forecast in a Reuters survey of analysts. Forecasts spanned -0.1 per cent to +0.5 per cent.

Italian government bonds and shares have been pounded by markets in recent weeks, embroiling the euro zone's third largest economyh in the region's debt crisis.

Markets have focused on Italy's political instability and dismal growth prospects, sending its 10 year sovereign bond yields above 6 percent, a level regarded as unsustainable.

Official statistics agency ISTAT reported that gross domestic product was up 0.8 per cent year-on-year, also in line with forecasts and slowing from +1.0 per cent in the first quarter.

"The export-led recovery this year probably peaked in the second quarter," said Raj Badiani of IHS Global Insight. "I would expect growth to either disappear in the third quarter or the economy to contract slightly."

Analysts say the downwardly revised 1.1 per cent full-year growth forecast of Silvio Berlusconi's beleaguered government looks at risk, leaving Italy in its customary position as one of the most sluggish economies in the world.

ISTAT gave no numerical breakdown of GDP components with its preliminary estimate, saying only that activity in industry and services both expanded, while agriculture contracted.

Reuters