* Italy to offer up to 18 bln euros to businesses hit by lockdowns
* More funds approved for vaccine roll-out, tax breaks on hirings
* Rome extends state guarantees on bank loans, debt relief (Updates after cabinet approves package)
By Giuseppe Fonte
ROME, May 20 (Reuters) - The Italian government on Thursday approved some 40 billion euros ($48.8 billion) of stimulus measures for the economy, funding tax relief and grants to businesses forced to close by coronavirus lockdowns, sources said.
The extra spending was already factored in to the government's public finance targets in April, and is set to drive the budget deficit to 11.8% of national output this year, from 9.5% reported in 2020.
Rome's huge public debt, the second highest in the euro zone as a share of gross domestic product after that of Greece, is forecast by the Treasury to climb to 159.8% of output this year, the highest level in Italy's post-war history.
Including the latest measures approved by cabinet on Thursday, Italy has deployed more than 200 billion euros of extra spending since the COVID pandemic hit the country 15 months ago.
Prime Minister Mario Draghi will outline the latest package at a news conference scheduled for 4 p.m. (1400 GMT)
Of the 40 billion euros, up to 18 billion will finance grants to companies, government and political sources told Reuters.
Around 5 billion euros will be used to support employment, with measures including tax breaks for companies that hire and train permanent employees, a source from the Labour ministry said.
The government also approved a measure extending a freeze on firing which was due to expire in June, the source added. For large businesses eligible for furlough schemes linked to the COVID emergency, the extension will run until end-August.
More than 2 billion euros will go to the health service, as Italy tries to accelerate its COVID-19 vaccine roll-out.
As of Wednesday, some 15% of the Italy's population had been fully vaccinated, while around 33% had received at least one shot, figures which put the country broadly in line with the European Union average.
Other measures in the spending package include a six-month extension of state guarantees on bank loans to the end of 2021, and a debt holiday scheme on loan repayments for small-and medium-sized companies.
Until the end of June, no repayments of any type will be due, while from July until the end of the year, only the interest must be paid.
The government dropped a mooted measure lifting a cap on tax incentives for bank mergers, according to a draft of the decree prepared for cabinet, seen by Reuters. However, it prolonged tax breaks for the sale of banks' bad loans.
($1 = 0.8201 euros) (Reporting by Giuseppe Fonte, editing by Gavin Jones)
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