ROME, Oct 8, 2008 (AFP) - The Italian government may decide Wednesday to set up a special fund to support banks if they dip below a certain level of solvency, the ANSA news agency reported.

A bank availing of the support would be given a deadline to pay it back, failing which the government would acquire a stake in the company, ANSA said, without stating the size of the possible fund.

The cabinet was to hold an extraordinary meeting to adopt 'urgent measures' to guarantee stability in Italy's banking system later Wednesday.

The ministers may decide to raise deposit guarantees on savings from the current 103,291 euros (141,000 dollars), ANSA said.

Italy has been largely shielded from the knock-on effects of the global financial crisis because its banking sector is mostly retail, relying on ordinary savers' deposits for their business rather than the short term money markets.

However leading bank UniCredit, which has the most foreign exposure among Italian banks, has been hit hard on the Milan stock market and is struggling to reassure investors about its future.