Italy president starts talks to end political deadlock

Italian President Giorgio Napolitano began two days of consultations with political leaders on Wednesday in a bid to determine who should be given the mandate to form a new government in the eurozone's third largest economy.

The country was left in a political stalemate after February elections which saw the winning centre-left coalition fail to snag the majority needed to govern.

Talks began with Italy's minor parties, including Prime Minister Mario Monti's centrist bloc.

Napolitano is set to meet on Thursday with former comedian Beppe Grillo, founder of the Internet-based Five Star Movement (M5S), and former premier Silvio Berlusconi and his centre-right People of Freedom party (PDL).

The talks are expected to wind up Thursday with Pier Luigi Bersani, leader of the centre-left Democratic Party (PD), which secured a majority in the lower house at the election but lost out in the Senate, leaving Italy in deadlock.

Political observers say Napolitano is likely to offer the mandate to Bersani, but only if the former Communist can persuade the president that he has the support of other parties to govern.

Napolitano's decision is not expected before Friday.

Bersani has been seeking a deal with the M5S, which snapped up large amounts of protest votes at the February 24-25 election, but the anti-politics movement has so far refused to help the left form a majority.

Should no deal between the divided parties be forthcoming, Napolitano may be forced to install a caretaker government for a short period and Italians could be back at the polls as early as June, observers say.

The stalemate has unnerved economic and political observers in Europe who warn that the country risks falling back into the grip of the debt crisis -- fears increased in light of the current bitter standoff over bank deposits in Cyprus which is sending tremors through the eurozone.