* Italy asks China to make "significant" debt purchases -FT

* Follows visits between the two countries

* News lifts stocks and the euro in short covering

* Italy faces investor test with debt auction on Tuesday

NEW YORK/BEIJING - Italy has asked China to buy Italian debt as the euro zone's third-largest economy struggles to convince markets it can manage its debt load, media reports said.

An Italian auction of long-term debt due later on Tuesday could show if investors have found any reassurance from the reports that China might offer financial support to Italy.

The Financial Times said on its website that Italy had asked Beijing to make "significant" purchases of Italian debt. The Wall Street Journal reported Italy was hoping China would buy "large amounts" of debt.

The news boosted stocks and the euro on the prospects of a cash injection for a country that is regarded as too big to fail and too big to bail out amid a deepening debt crisis in the euro zone.

Italian officials told the FT that Lou Jiwei, chairman of China Investment Corp (CIC), headed a delegation in Rome last week to meet with Italian Finance Minister Giulio Tremonti and state agency Cassa Depositi e Prestiti.

Two weeks ago, Italian officials were in Beijing to meet CIC and China's State Administration of Foreign Exchange (SAFE), which manages the bulk of China's foreign exchange reserves, the FT said.

With about a quarter of China's record foreign currency reserves of $3.2 trillion estimated by analysts to be held in euro assets, Chinese leaders have repeatedly voiced support for the debt-mired single currency area.

However, it is unclear if the latest talks between Italy and China will lead to any big bond purchases by Beijing, the Wall Street Journal reported, quoting a person familiar with the matter.

Premier Wen Jiabao said earlier this month that China retained its confidence in the euro and Europe's economy but the region's governments need to ensure the security of Chinese investments there.

Investors concerns over Italian debt have forced the country's borrowing costs higher. Italian 10-year government bonds offer a yield that is about 380 basis points over German bunds, close to a peak near 400 bps hit in August.

Italian credit default swaps, an insurance-like instrument to hedge against debt default, hit a record spread of more than 500 bps on Monday.

In addition, yields on the sale of 12-month Italian bills at auction on Monday rose to a three-year high, suggesting buying of Italian debt in recent weeks by the European Central Bank in the secondary market had done little to change market sentiment.

Italy has moved to the centre of the euro-zone crisis as the fractious centre-right coalition has dithered over measures to stimulate growth and slash the country's public debt of 1.9 trillion euros ($2.6 trillion).

An Italian emergency could overwhelm existing euro zone bailout mechanisms, and under mounting pressure from bond markets Rome has presented an austerity package that aims to balance the budget by 2013.

The deficit-cutting measures are expected to be approved by parliament this week but there are widespread fears they could further slow Italy's already fragile growth.

Prime Minister Silvio Berlusconi promised on Monday that the 54 billion euro package of measures would be approved quickly and without further changes, seeking to calm fears that Italy had lost the will to push through the unpopular plan.

Italy faces a test of market sentiment later on Tuesday when it plans to sell up to 7 billion euros of longer-term debt, including a new five-year bond, plus 2018 and 2020 issues.

Italy's previous long-term sale at the end of August attracted poor demand for a new 10-year bond, renewing pressure on the country's bonds on the secondary market.

Wu Xiaoling, a former deputy governor of the People's Bank of China, told Reuters on Tuesday that investor "panic" about Europe's debt crisis was unnecessary, and China was ready to work with others to boost market confidence.

"We will continue to support Europe's measures in maintaining a stable euro," said Wu, who is now with the National People's Congress Standing Committee, a law-making body.

Wu, who is not directly involved in China's foreign exchange investment decision-making, said the international community should provide "tolerance and time" to Italy and other European countries with debt problems "if they have motivations to make changes".

"But if the country does not show its determination to reform, other countries just won't help it," Wu said on the sidelines of a conference when she was asked whether China should buy bonds from Italy.

Zhang Yansheng, a foreign trade researcher in a think-tank under China's economic planning agency, said Beijing generally aims to help countries in need.

"Why has China increased holdings of Italian bonds when Italy had problems?" he asked at the Summer Palace Dialogue between Chinese and American Economists.

"Because China knows that helping Italy, helping Greece, helping Europe is equal to helping the world and helping itself," Zhang said.

Reports that Italy has approached China to buy bonds sparked a bout of short covering in financial markets, but did little to ease fears that Europe is sliding into a banking crisis.

Market speculation is growing that Moody's ratings agency will downgrade Italy's sovereign debt rating this week and that French banks may also be in the ratings firing line because of their exposure to Greek debt.

Fears are growing of a debt default by Greece as it struggles to meet the terms of its financial bailout.

"There are still enormous challenges facing the European system at this point and fears around a default in Greece are very high and it's hard to see that changing any time soon," said Greg Gibbs, a strategist at RBS in Sydney.