Italy awaits new government as Napolitano sworn in

Italy's 87-year-old president Giorgio Napolitano prepared to be sworn in for an unprecedented second term on Monday amid hopes of an end this week to a deadlock on forming a new government.

Sparring politicians in the recession-ravaged country have been at loggerheads for two months ever since elections in February that left no clear winner and revealed growing social unease.

The main parties appealed to Napolitano on Saturday to stay on and elected him later in the same day in a surprise move that was slammed by a new anti-establishment party as a "coup d'etat".

Napolitano is due to take his presidential oath in parliament at 1500 GMT, but the usually grandiose ceremony has been stripped down in line with a sombre mood in times of austerity in Rome.

The ageing president, an ex-communist who began his political career as an anti-fascist activist during the Second World War, is expected to urge politicians to show more responsibility.

Political observers say his nominee for prime minister could be announced on Wednesday or Thursday and the name most frequently mentioned is that of former premier Giuliano Amato.

Amato, 74, is seen as being above the party political fray but his nomination would fail to answer growing calls for wholesale change in Italy, especially from younger generations.

Amato's first government dates back to the early 1990s after a series of anti-corruption inquiries brought down the country's ruling class.

Nicknamed "Dr Subtle" for his ability to negotiate treacherous political waters, Amato was prime minister again between 2000 and 2001.

Analysts say the government could resemble the outgoing one of Mario Monti, a former European commissioner installed in 2011 after then premier Silvio Berlusconi was ousted by a rebellion within his own ranks and a collapse of financial markets.

The difference from Monti's "technocratic" government in the new cabinet could be the inclusion of party political figures, including possibly Enrico Letta -- a leading member of the leftist Democratic Party -- and Angelino Alfano, national secretary of a Berlusconi's People of Freedom party, analysts said.

The centre-left came first in February's election but failed to win an overall majority in parliament with Berlusconi's coalition a very close second and former comedian turned firebrand Beppe Grillo's protest movement in third place.

The centre-left has been riven by divisions since the elections and the party's leadership resigned en masse on Friday after two presidential candidates it had proposed failed to get elected.

Business daily Il Sole 24 Ore on Monday put forward three proposals for any new government -- paying back debts owed by the state to the private sector, creating jobs and easing the tax burden.

The Milan stock exchange cheered Napolitano's re-election with the benchmark FTSE Mib index flying up 1.77 percent in afternoon trading.

The difference between the yields on Italian 10-year government bonds and benchmark German ones also narrowed to 288 basis points.

But new official figures out on Monday revealed the growing social cost of the recession.

The Istat agency said 955,000 Italian households were without a source of income.

Grillo's movement has capitalised on a growing sense that mainstream politicians are incapable of dealing with this social fallout.

The Corriere della Sera daily said in an editorial: "The holiday from reality is over."

"The new government, whoever it is led by, will have to give a rapid and concrete response to the problems of the country or Grillo will win."