Vulnerable debtor Italy sold the top planned amount of bonds at a 4.5 billion euro (3.8 billion pound) auction on Friday and the yield on a two-year zero coupon bond fell to its lowest since May, boosting market sentiment ahead of a more demanding debt sale next week.

Analysts said the prospect of the European Central Bank offering banks more cheap three-year funds on February 29 had helped Friday's sale, driving the yield on the zero coupon bond down to 3.01 percent from 3.76 percent at a sale a month ago.

But Italy faces a harder test on Tuesday when it offers a new 10-year bond for up to 3.75 billion euros. Demand for government paper that can be used to borrow cheaply from the ECB has driven down yields on Italian bonds in recent weeks but investors have been more reluctant to lend over the longer term.

With nearly two trillion euros in outstanding debt, Italy has widely been seen as too big for the euro bloc to rescue if its sovereign debt crisis were to spread further.

Another solid auction with a decent cover and lower yields, said Nicholas Spiro, Managing Director at Spiro Sovereign Strategy.

The real test comes after the second long-term refinancing operation next week. This is when we'll get a better feel for whether this year's rally in the front end is likely to extend to the back end.

Some analysts warn support from the ECB's unprecedented longer-term cash-injections may wane as Wednesday's three-year offer is likely to be the last one.

At 357 basis points, Italy's 10-year yield spread against Germany was 10 basis points lower on the day - more than 200 basis points below the record high hit at the peak of the crisis last November. Traders said bonds were performing well after the auction.

The 3 billion euro sale of the Jan 2014 CTZ bond was oversubscribed 1.9 times, up from 1.7 times at a bigger auction at the end of January. Redemption flows may have helped demand as 10.6 billion euros of CTZ bonds expire at the end of the month.

Italy also sold a total of 1.5 billion euros of two inflation-linked BTPei bonds due in 2016 and 2019 - which it had last auctioned in April and September last year, respectively.

The BTPei auction was strong, said Citi analyst Jamie Searle.

After this month's one-notch downgrade (by rating agency Moody's) investors who had cut exposure are probably reducing their underweight positions, Searle said.

Had Moody's cut Italy's rating by two notches, Italian linkers would have been excluded from a major index for such bonds.

Italy's Treasury comes back to the market on Monday with a 12.25 billion euro bill auction, followed by a five- and 10-year bond sale on Tuesday for up to 6.25 billion euros.

(Additional reporting by Elvira Pollina; Editing by Ruth Pitchford)