Prime Minister Silvio Berlusconi rejected Friday growing speculation that his fragile centre-right coalition will collapse soon, promising new reforms as growing market pressure pushed Italy's borrowing costs to a new record.

Berlusconi said his alliance remained solid with the regional pro-devolution Northern League party, whose leader Umberto Bossi has expressed open scepticism about the survival of the coalition government.

There is an absolute need for political stability and Bossi thinks exactly the same way I do. The pact we have with the League has never been up for discussion, Berlusconi said.

No credible political alternative exists.

In a sign of the mounting market pressure on Rome, the Treasury was forced Friday to pay a record yield of 6.06 percent at an auction of its benchmark 10-year bonds, beating a euro lifetime high set at a similar auction a month ago.

As Italy sinks deeper into the euro zone debt crisis, tensions in Berlusconi's scandal-plagued government have grown sharply, leading to widespread speculation in the press and even among members of his own party that the government will fall soon, leading to elections in 2012, a year ahead of schedule.

This week the League rejected plans to hike the pension age to 67, leading to tense late-night negotiations before a compromise was patched up in time to take to a summit in Brussels Wednesday.

An unsigned letter allegedly from disgruntled members of Berlusconi's ruling PDL Thursday called on him to step down, although it was dismissed by party leader Angelino Alfano as a phantom.

REFORM PROMISES

Berlusconi said the package of measures presented in Brussels was welcomed by EU partners who had been pressing Rome for urgent steps to rein in its 1.9 trillion euro debt and boost the sluggish economy.

But the proposals, including an increase in the pension age, rules making it easier to lay off staff and provisions to place civil servants in special redundancy schemes, have raised opposition from unions and scepticism about whether they will ever be implemented.

In the increasingly murky environment of Italian politics, there has been speculation that the package is part of a deal between Berlusconi and Bossi to take the government to the end of the year before triggering new elections in the spring.

Friday, Berlusconi dismissed any suggestion of a pact to go to the polls before the scheduled date in 2013 and said an election campaign in the middle of the crisis would be very seriously damaging to Italy.

The important thing at the moment is to maintain the cohesion of the majority and the government ... With this majority in parliament, we will complete the reforms which are indispensable to our country, he said.

Even if the measures are passed by parliament however, most would not come into force until the middle of next year and would therefore be the responsibility of a new government if there were an election.

Italy's international partners, led by France and Germany, have expressed open exasperation at a succession of unfulfilled reform promises from Rome, which has relied on intervention by the European Central Bank to hold down its borrowing costs.

(Reporting by James Mackenzie; Editing by Barry Moody)