Milan - Italian bond yields fell from recent record highs at auction on Thursday but cautious investors still demanded a near 7% yield to buy 10-year paper, a level seen unsustainable over time for the eurozone's third-largest economy. An injection of longer-term liquidity from the European Central Bank (ECB) and a new Italian budget package this month have eased pressure on shorter-term debt, but longer-dated bonds still pose a challenge for Italy ahead of large redemptions early next year. Italy raised about €7bn on Thursday in thin holiday markets after a well-bid short-term debt auction on Wednesday. The Treasury had planned to sell between €5bn and €8.5bn of bonds. On Thursday, Italy paid 5.62% to sell new three-year debt - a much lower yield compared to a euro lifetime high of 7.89% paid only a month ago. The fall in the three-year yield comes after the bill sale on Wednesday saw six-month funding costs halve from a month earlier. The 10-year yield fell to 6.98% from a euro lifetime record of 7.56% at an end-November sale.