* ECB says gold tax could breach Banca d'Italia independence
* Italy proposes cutting tax to 1 pct from 6 pct
* Ongoing process of consultation
(Adds ECB opinion, details, proposed tax change, background)
ROME/FRANKFURT, July 15 (Reuters) - Italy proposed to sharply reduce a tax on notional gains in the value of gold r reserves on Wednesday after the European Central Bank said the tax risked breaching the Bank of Italy's independence.
In a strongly-worded legal opinion published on its Web site, the ECB said the draft law -- taxing unrealised capital gains on gold reserves due to rising market prices -- could also weaken the Bank of Italy's finances and risked violating a ban on using central bank resources to finance the public sector.
The legislation, announced on June 26 as part of a crisis package, is designed to shore up Italy's wide public deficit this year.
"The draft article needs to be reconsidered to address the concerns expressed in this opinion, relating in particular to central bank independence and the prohibition on monetary financing," the ECB said.
It added that the Bank of Italy "may potentially never realise such notional gains", either because it might not sell the reserves or because prices of gold might fall.
"Instead of targeting optimal realisation of its central bank tasks, (the Bank of Italy) would need to mitigate the financial risks of the arising tax liabilities," the ECB said.
The Bank of Italy declined to comment.
Though the proposed law does not specifically target the central bank, the ECB said the Banca d'Italia would be the main entity affected.
"The ECB understands in this context that the Banca d'Italia will be the main entity affected by the proposed taxation and will bear a major part of the newly created tax obligations," it said in the text of the opinion.
ROME SEEKS COMPROMISE
The Italian government proposed an amendment to the bill after receiving the ECB view which would cut the tax to 1 percent from an initial plan to take 6 percent of unrealised gains on gold reserves.
Italy's economy ministry said in a statement steps would be taken to ensure the measures did not affect the Bank of Italy's independence and added that the ECB's views were part of an ongoing exchange.
"We expect to find a solution through amendments (to the law)," the statement said.
Italy's government expects its deficit to top 5 percent of GDP this year, far in excess of Brussels' 3 percent ceiling.
The Banca d'Italia is the fourth-largest holder of gold in the world, with reserves of 2,452 tonnes, according to the World Gold Council. Its reserves are worth around $73 billion at current prices, according to Reuters calculations.
The decree law presented to the cabinet in June proposed the introduction of a 6 percent tax on unrealised capital gains on gold on balance sheets for non-industrial use. (Reporting by Krista Hughes in Frankfurt, Daniel Flynn and Valentina Rusconi in Rome and Stephen Jewkes in Milan; editing by Stephen Nisbet)