Italy extends tax breaks on less-polluting new cars

By Giuseppe Fonte and Alberto Sisto

ROME (Reuters) - The government agreed on Friday to give Italians an extra year of tax breaks on new, less-polluting cars, lifting shares in Fiat, the country's biggest car-maker.

The current scheme of incentives due to expire on December 31 will be extended to the end of 2008.

Government sources told Reuters that those swapping certain high-polluting cars for new less-polluting models would enjoy a bonus of 700 euros ($1,030) on top of the tax break while for those getting rid of two cars, the bonus would increase by a further 500 euros.

Those who give up old models without buying new ones will be offered other incentives such as free public transport.

"We have strengthened the environmental objectives, favoring more eco-sustainable cars and fostering measures which favor local public transport," Industry Minister Pier Luigi Bersani said.

News of the decision at the cabinet's final meeting of the year sent Fiat shares trading more than 2 percent higher. At 1600 GMT, its stock was up 2.3 percent at 17.67 euros.

Fiat had no immediate comment.

Best known for small, fuel-efficient cars, the Italian automaker enjoyed strong sales in its home market this year partly due to the tax breaks.

But its stock has suffered in recent weeks amid investors' fears that sales would fall next year if the government withdrew the current incentives.

(With reporting by Lisa Jucca and Gilles Castonguay in Milan; Editing by David Cowell)