Italy's government has approved a $2.6bn stimulus package for its ailing car and domestic goods industries, in a bid to boost the country's economy.

Silvio Berlusconi, the Italian prime minister, said the package would provide a bonus for people trading in their old car, and tax breaks on furniture and household goods.

He also called on the car industry to keep its manufacturing plants "in Italy, to invest new products and to keep up payments to components suppliers".

The Italian car industry has been hit hard by the global economic downturn, with new vehicle registrations down by 32.6 per cent in January.

Global downturn

Under the government's stimulus package, people trading in their cars will receive a payment of up to $1,930 to buy a new, more fuel efficient one.

Consumers will also receive a 20 per cent tax deduction on appliance and furniture purchases of over $12,890.

The plan is the latest attempt by Italy's government to boost the economy amid the global financial crisis, after an economic stimulus plan announced in November was criticised for being ineffective.

Other European nations have also moved to prop up their car industries during the global downturn.

Britain is guaranteeing up to $3.37bn in loans to the sector, while France has said it could inject up to $7.73bn of aid. Germany has also introduced measures worth $1.93bn.