Italy's three-year debt costs fell below 5 percent at the first bond auction of the year spurring hopes the troubled borrower would be able to make it through a refinancing hump in the first months of the year.

Domestic demand fuelled by cheap European Central Bank funds allowed Italy to raise the maximum planned amount of 4.75 billion euros at the sale, after helping Spain sell twice the targeted amount of bonds at lower rates at an auction on Thursday.

Italy sold its November 2014 three-year benchmark bond at an average rate of 4.83 percent on Friday, down from a 5.62 yield it paid only around two weeks ago.

It was the lowest three-year auction yield since September last year.

On Friday, the November 2014 BTP bond sale was covered 1.22 times versus a bid-to-cover ratio of 1.36 at the end of December.

Rome also sold two off-the-run issues due in July 2014 and August 2018.

(Reporting by Valentina Za)