UPDATE 1-Italy PM Renzi sees no new budget tightening despite weaker growth
* Government plan to free up "billions" in investments
* Sees tax incentives for extracting oil, natural gas
* Proposals to be put up for public review
* Renzi hopes Senate reform will pass first hurdle next week (Adds details on measures aimed at freeing up investment, comments from Renzi, Padoan)
By Steve Scherer
ROME, Aug 1 (Reuters) - Italian Prime Minister Matteo Renzi outlined measures on Friday aimed at bolstering public works investments and ruled out an extra budget squeeze despite a gloomier economic outlook.
"We expected higher growth (this year) in line with forecasts all over the euro zone," he told reporters after a cabinet meeting. "Unfortunately it's not yet what we expected and we will try to work with more decision and determination."
But on public spending, Renzi told reporters: "Things are getting back on track and there's no surprise on the way (to realign the budget)."
Renzi's government had targeted 0.8 percent growth for this year, but the Bank of Italy cut its forecast to just 0.2 percent last month.
While Italy's bond yields are dramatically lower than they were in 2011 and recent employment figures have improved slightly, the euro zone's third-biggest economy has yet to rebound from a slump that began three years ago.
The 39-year-old Renzi took office about six months ago promising sweeping change to revive growth and overhaul an often inefficient institutional framework, but he has recently hit stiff resistance in parliament to the latter.
A proposed reform of the Senate and Title V of the constitution, which governs the relationship between the regions and the national government, has been mired in parliamentary trench warfare all week, threatening to block the premier's wider reform agenda.
Renzi's aim is to halve the size of the Senate and turn it into an assembly of regions with little power, replacing the elected Senators with local mayors and regional politicians.
While some opposition parties walked out of the Senate on Thursday, refusing to participate in voting for a reform they say will undermine democracy and concentrate too much power in the government's hands, Renzi was optimistic that "next week will be conclusive" for an initial passage of the reform.
On Friday, Renzi touted measures proposed by the government, called the "unblock Italy" package, saying they would "help along" growth and may free up blocked infrastructure projects worth billions of euros.
The package, which will now be put up for public review before being proposed as legislation, foresees tax incentives for extracting oil and natural gas in Italy which Renzi said could help to attract private and international investments in oil and gas of 17 billion euros ($23 billion) over the next 20 years.
The proposal also would allow Italy's state investment company, Cassa Depositi e Prestiti (CDP), to broaden its participation in infrastructure projects, Economy Minister Pier Carlo Padoan said.
"Most financing for investments is private," Padoan told reporters. "We need to simplify and redefine incentives to increase investment possibilities."
The package "could free up several billion euros in investments. It's impossible to estimate," he said. (1 US dollar = 0.7448 euro) (Additional reporting by Francesca Piscioneri, Giuseppe Fonte and James Mackenzie; Editing by Ruth Pitchford)