Monti is expected to unveil measures on December 5 that could include a revamped housing tax, a rise in sales tax and accelerated increases in the pension age. But pressure from the markets could force him to act more quickly.
A source said contacts between the International Monetary Fund and Rome had intensified in recent days as concern has grown that German opposition to an expanded role for the European Central Bank could leave Italy without a financial backstop if one were needed.
The source said it was unclear what form of support could be offered, such as a traditional standby arrangement or a precautionary credit line, if a market selloff on Monday forced immediate action.
The IMF inspection team is expected to visit Rome in the coming days but no date has been announced.
A report in Italian daily La Stampa said up to 600 billion euros could be made available at a rate of between 4-5%to give Italy breathing space for 18 months. Such a sum would be beyond the IMFs current capacity and would need new measures such as the issue of new special drawing rights or intervention by the ECB, it said.
The Funds total lending capacity is currently around $400 billion.
The IMF declined to comment on any moves to provide financial support, and official sources in Rome said they were unaware of any request for assistance from Italy, which has over 185 billion euros of bonds falling due between December and the end of April.
However, an IMF spokesperson poured cold water on the La Stampa report. There are no discussions with the Italian authorities on a programme for IMF financing, thespokesperson said.
Italys borrowing costs have returned to the dangerous levels that triggered the collapse of former Prime Minister Silvio Berlusconis centre-right government, with yields on 10 year bonds ending last week at more than 7.3%.
Italian yields are now in the territory that forced Greece, Ireland and Portugal to seek international bailouts and an auction on Tuesday of up to 8 billion euros of BTP bonds will be a crucial test. On Friday, Italy paid a euro lifetime high yield of 6.5% to sell new six-month paper, a level which analysts said cannot be maintained for long without pushing a public debt amounting to 120% of gross domestic product out of control.
Italy, the euro zones third-biggest economy, would be far too big for existing bailout mechanisms and default on its 1.8-trillion euro debt would cause a banking and financial crisis that would probably destroy the euro.
Monti outlined the broad thrust of his reform plans earlier this month, promising a mix of budget rigour and reforms to stimulate economic growth, and has stuck to Berlusconis pledge to balance the budget by 2013.
The measures outlined so far are broadly in line with directions previously given by the ECB, but there have been no detailed discussions with international bodies on the kinds of conditions normally attached to IMF assistance programmes.
On pensions, the government is expected to bring forward an already-planned increase in retirement ages, with a wider reform possible in the coming weeks. Monti may reintroduce a housing tax that was scrapped by Berlusconi in a last-minute campaign pledge before the 2008 election. The move cost the treasury an estimated 3.5 billion euros a year.