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By Jennifer Ablan and Aaron Pressman
NEW YORK, Nov 9 (Reuters) - Italy's debt woes signal "a new, even more dangerous phase in Europe's debt crisis," Mohamed El-Erian, co-chief investment officer of top bond manager PIMCO, said on Wednesday.
The European Central Bank can act as a circuit breaker but can only be effective if its actions are supported by a host of other measures, El-Erian, who helps oversee more than $1.2 trillion at PIMCO, home to the world's largest bond fund, told Reuters.
PIMCO is the only U.S. investor in the top 10 list of holders of Italian sovereign debt, based on publicly available filings. With a $4.8 billion exposure, it owns almost half of all U.S. institutional investors' total holdings.
El-Erian did not comment on PIMCO's holdings of Italian debt.
European shares fell on Wednesday as rising tensions around Italy's debt situation pushed its bond yields into euro-era record highs, pressuring risk assets across the board.
Rick Rieder, chief investment officer for fixed income at BlackRock Inc , the world's largest asset manager, said he was buying small amounts of Italian debt last month for portfolios that had little or no prior holdings.
"We have become more comfortable with the levels of some of the debt, like some intermediate Italian bonds," Rieder said on Wednesday. "These levels will foster a greater sense of urgency toward an ultimate European solution. However, we still maintain a very conservative posture here, and see a number of hurdles which still have to be cleared before growing positions."
The markets could get more volatile as European leaders seek a solution, he added. "We are optimistic that this will happen over time, but still think that markets will be stressed until that time comes," he said.
Among the New York-based firm's $3.3 trillion of assets, Rieder helps oversee $620 billion of actively-managed fixed income accounts.
After rallying at the open after Prime Minister Silvio Berlusconi said he would resign as soon as the Italian parliament passed urgent budget reform, an increase in margin calls on Italian debt by two European clearing houses pushed yields on Italian 10-year paper to 7.5 percent and sent stocks tumbling.
The rise in yields above 7 percent, seen by many analysts as unsustainable in the long-run because of the increase in Italy's debt costs, prompted aggressive buying of Italian debt by the European Central Bank, which in turn took some of the edge off both equity and bond market runs.
"Domestic politics are undermining already complex relations among Italy and its external creditors," El-Erian said.
"Attention will soon shift from when and how Berlusconi will step down to whether he can be replaced quickly by an effective government that designs and implements a multi-year program to contain debt and promote economic growth. Market technicals are amplifying disruptive fundamentals."
Investors domiciled in North and South America represent just 6 percent of all Italian government debt publicly disclosed and held by institutions.