Italian authorities will meet on Tuesday, officials said, to discuss growing market turmoil that threatens to push the country's borrowing costs to unsustainable levels, dragging it into a full-blown fiscal crisis.

The meeting of the Financial Stability Committee -- made up of representatives from the economy ministry, the Bank of Italy, market regulator Consob and insurance authority ISVAP -- comes as markets threaten to turn on the euro zone's third-largest economy.

Economy Minister Giulio Tremonti is expected to chair the meeting, which will also be attended by Treasury director general Vittorio Grilli via conference call, an official with knowledge of the meeting, who spoke on condition of anonymity, said.

On Tuesday, the yield spread on Italian 10-year BTP bonds against German Bunds widened to a euro-lifetime record of 385 points, with yields on Italy's 10-year bonds climbing above 6 percent, a level generally seen as unsustainable in the long term.

Prime Minister Silvio Berlusconi, who has said little in public since bond yields began climbing last month, is due to address parliament on the crisis on Wednesday.

Despite having one of the euro zone's heaviest debt burdens at 120 percent of gross domestic product, Italy has largely stood on the sidelines of the euro zone debt crisis thanks to a relatively modest deficit and a conservative financial system.

But doubts about the government's ability to hold the line on debt and implement the kinds of tough reforms needed to spur its stagnant economy into growth have caused growing alarm on financial markets.

Doubts over the position of Tremonti, who has appeared increasingly estranged from Berlusconi, have also unsettled investors who have long seen the economy minister as an anchor of stability.

With some 1.6 trillion euros of bonds outstanding and 157 billion maturing by the end of 2011, a full-scale crisis in Italy would trigger much wider problems across the region.

Italy's blue-chip share index fell to its lowest in more than 27 months in early Tuesday trade, dragged down by losses in banking stocks. The index has fallen around 13 percent over the past month as pressure has grown on Italian assets.

Because of their vast holdings of domestic government debt, Italian banks have born the brunt of the selloff. Big Italian banks have lost more than 20 percent of their value this year and are trading at historically low valuation multiples.

(Additional reporting by Francesca Piscioneri, writing by James Mackenzie; Editing by John Stonestreet)