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Italian President Giorgio Napolitano on Tuesday held a round of consultations with political leaders following his re-election in a new bid to end a two-month deadlock on forming a government.
The 87-year-old Napolitano met with the leaders of all the main parties in parliament and was expected to announce his nominee for prime minister on Wednesday.
Centre-right leader Silvio Berlusconi said his People of Freedom party would support whatever nominee Napolitano chooses for prime minister.
Berlusconi, a three-time former prime minister at the centre of various scandals, said he did not want "a temporary government but a lasting one".
Napolitano is thought to favour a grand coalition arrangement including the leftist Democratic Party, which is riven by internal divisions and currently leaderless, and the People of Freedom.
But the small "Left, Ecology and Liberty" (SEL) party, which has been allied with the Democratic Party, said it would oppose such an arrangement -- as did the right-wing "Brothers of Italy" party and the populist Northern League party.
"We are totally against the birth of a grand coalition government," SEL leader Nichi Vendola said, adding that any cabinet that included Berlusconi loyalists would be unacceptable.
"The centre-right has destroyed Italy," he said.
At his swearing-in ceremony in parliament on Monday, Napolitano told the parties he had been reluctant to stay on as president and accused them of being "deaf" to the urgent need for reforms.
He also threatened to resign if party leaders continued their "fatal stalling" on the formation of a new government -- a drastic move that would plunge Italy into unprecedented instability.
The Democratic Party (PD) came first in February elections but failed to win a parliamentary majority.
The entire leadership of the leftist party stepped down on Friday after two of the presidential candidates it had proposed failed to win enough votes from the party's own lawmakers in parliament.
One possibility for the prime ministerial nomination is Matteo Renzi, the 38-year-old mayor of Florence, a reformer inspired by the examples of US President Barack Obama.
But analysts say former prime minister Giuliano Amato is more likely. A politically neutral Europhile, Amato has a long political and academic pedigree.
Another possibility is the current Interior Minister Anna Maria Cancellieri, a former prefect who would be Italy's first female prime minister.
Italy, the eurozone's third largest economy, has been in limbo since February's inconclusive general election and Prime Minister Mario Monti's outgoing government has limped on with only interim powers.
Business leaders, trade unionists and the Catholic Church have urged politicians to act quickly as a painful recession forces firms to shut down and leaves many Italians struggling to make ends meet.
The financial markets responded well to Napolitano's re-election, with stocks in Milan rising by 1.66 percent on Monday and borrowing costs falling to their lowest level since 2010.
The markets jumped again on Tuesday and the benchmark FTSE Mib index ended the day up 2.93 percent ahead of an expected imminent resolution of the long delay on forming a cabinet.
Giorgio Squinzi, leader of the main employers' association Confindustria, says Italy has already lost 1.0 percentage point in gross domestic product due to the political stalemate.
A new anti-establishment party, the Five Star Movement, drew many protest votes in the February elections and came in third place.
Led by ex-comedian Beppe Grillo, 64, the party campaigned against austerity and the perks and corruption that have plagued Italian politics for decades.
He told Germany's top-selling Bild newspaper Tuesday he wanted a "German invasion" of Italy to ensure "honest, competent" politicians.
"In our parliaments there are still 30 MPs who have been convicted of serious offences. I'd also like honest, competent and professional people in the right positions," he said.
"In this respect, I would be glad about a German invasion of Italy," he quipped.