Italy PM Letta warns coalition allies as tension mounts

By Silvia Ognibene

SARTEANO, Italy (Reuters) - Italian Prime Minister Enrico Letta took his ministers to a conference center in a former abbey in Tuscany for a retreat on Sunday to thrash out differences that have already threatened the stability of his fragile coalition.

The two-day bonding session near the town of Sarteano was billed by Letta's office as a chance to discuss some of the thorniest policy issues facing the coalition between the main traditional rivals on the left and right of Italian politics.

As well discussing major reforms to the dysfunctional electoral and parliamentary system, the cabinet must also find a way to reconcile differences over billions of euros worth of tax cuts promised by the center-right but resisted by the left.

The encounter will also give Letta an opportunity to try to calm the mounting tensions that have appeared in his new government, formed last month after weeks of wrangling in the wake of February's deadlocked election.

Only two weeks after the government was formed, senior members of Letta's center-left Democratic Party (PD) took aim at their partners in Silvio Berlusconi's People of Freedom party (PDL) following a fierce attack on magistrates by the 76-year-old media tycoon at a rally on Saturday.

"It's quite clear that this demonstration complicates the relationship and not just between the PD and PDL but between all the parties," PD deputy Economy Minister Stefano Fassina told the daily La Stampa.

It was noted that Interior Minister Angelino Alfano, the PDL party secretary, attended the demonstration against magistrates who rejected an appeal by Berlusconi against a four year tax fraud sentence last week.

However the remarks were brushed off by PDL politicians including Agriculture Minister Nunzia de Girolamo, who said the rally was no different from a meeting of PD leaders on Saturday to choose a new party secretary.

"They hold assemblies in rooms inside, we're out in the squares, with the people," she told reporters as she arrived at the meeting.

TENSIONS

The fractious atmosphere has increased the problems facing Letta and raised doubts over the durability of his government, despite assurances from Berlusconi that he does not intend to withdraw support.

Behind the barbs, the coalition faces wide differences over tax policy which must be resolved to win extra budget leeway from the tight constraints imposed on Italy by the European Union's excessive deficit procedure.

Letta has pledged to focus on cutting youth unemployment of nearly 40 percent and restore growth to the sinking economy but he has little room for new spending given the huge burden of public debt, now around 130 percent of Italy's economic output.

EU authorities are due to decide this month whether to take Italy out of the excessive deficit procedure but approval could be endangered by the PDL's insistence on scrapping an unpopular housing tax that brings in 4 billion euros a year.

Letta's PD says it is more important to cancel a 1 percentage point increase in sales tax due to take effect in July and the government has agreed only to suspend payments of the housing tax due in June.

So far, however, there has been no agreement on how to pay for the cuts as well as urgently needed measures to fund special unemployment benefit programmes without pushing the budget deficit past EU limits.

In a bid to calm the tension, Letta's spokesman said on Sunday the coalition partners had agreed that ministers would henceforth not take part in electoral rallies or television talk shows not connected with their portfolios.

However Berlusconi's legal woes are likely to continue to overshadow the government, with a hearing in his trial on charges of paying for sex with a minor set for Monday.

Opinion polls continue to show the center-right holds a lead, with a survey by the ISPO institute in the Corriere della Sera showing Berlusconi's alliance on 35.6 percent ahead of the combined center-left on 29.6 percent and the anti-establishment 5-Star Movement on 24.1 percent.

(Writing by James Mackenzie; Editing by Giles Elgood)

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Italy court upholds Berlusconi tax fraud verdict

MILAN (AP) — An appeals court upheld the tax fraud conviction and four-year prison sentence against former Premier Silvio Berlusconi on Wednesday in a case that could see him barred from public office for five years.

In Italy, convictions are not considered definitive until all appeals are exhausted, and Berlusconi's lawyers are expected to appeal the case to the nation's highest Court of Cassation.

In October, a lower court convicted Berlusconi in a scheme that involved inflating the price his Mediaset media empire paid for TV rights to U.S. movies and pocketing the difference. Berlusconi has long denied the charges and says he's a victim of politically motivated prosecutors.

Wednesday's Milan appellate court ruling upheld the lower court's October decision barring him from public office for five years and from managing any company for three years.

Berlusconi appeared prepared for the decision, going on his Mediaset TG5 news on Tuesday night to proclaim his innocence and portray the case as a political witch hunt against him and designed to "eliminate a political adversary."

Berlusconi has been convicted in the past at the trial level. But the convictions have always either been overturned on appeal or seen the statute of limitations run out before Italy's high court could have its say.

Wednesday's ruling comes days before another one of Berlusconi's trials approaches the final leg. Closing arguments are scheduled Monday in Berlusconi's sex-for-hire trial. In that case, the media mogul is on trial in Milan on charges he paid for sex with an underage Moroccan teen during the infamous "bunga-bunga" parties at his villa and then tried to cover it up. Both he and the woman, Karima el-Mahroug, better known as Ruby, deny sexual contact. A ruling in that case could come before the end of the month.

In the Mediaset case, prosecutors allege Berlusconi and other the defendants were behind a scheme to purchase the rights to broadcast U.S. movies on Berlusconi's private television network and falsely declared the payments to avoid taxes.

They said the defendants then inflated the price for the TV rights of some 3,000 films as they relicensed them internally to Berlusconi's networks, pocketing the difference amounting to around euro250 million.

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Two policemen shot as new Italy government sworn in

ROME (Reuters) - Two police officers were shot and wounded outside the Italian prime minister's office on Sunday as Enrico Letta's new government was being sworn in around a km (mile) away at the president's palace, RAI state television reported.

One man was arrested at the scene of the shooting, a witness said, and it was initially unclear whether the attack was linked to the launch of the new government.

One of the officers was shot in the neck and was in a serious condition, a police official said.

Letta, 46, the moderate deputy head of the Democratic Party (PD), on Saturday ended two months of political stalemate since February's inconclusive election when he brought together former political rivals in a broad coalition government.

Letta's ministers stepped forward one by one to swear allegiance to the republic before President Giorgio Napolitano, who personally picked Letta as prime minister and had a central role in the choice of his cabinet team.

(Reporting by Gavin Jones; Editing by Andrew Heavens)

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Vote on Italy president risks center-left split

By Gavin Jones

ROME (Reuters) - Center-left leader Pier Luigi Bersani is expected to propose former Senate speaker Franco Marini as candidate for Italy's president, on Wednesday, risking a split in his Democratic Party a day before voting begins.

A PD source said Marini, a prominent Catholic and former leader of the moderate CISL union, would be put forward at a party meeting shortly. He would also have the backing of Silvio Berlusconi's center-right bloc and the centrists led by Prime Minister Mario Monti, the source said.

However he faces opposition from within Bersani's own camp, with the 38-year-old mayor of Florence, Matteo Renzi, his main party rival, immediately making clear that he would not back Marini.

"We oppose this choice. Our parliamentarians will not vote for him," he told the website of the daily La Stampa.

Parliament begins voting on Thursday for the successor to President Giorgio Napolitano, whose term ends on May 15.

It will be up to the new president to end the political deadlock left by the inconclusive February election, either by persuading the parties to come to an accord that would allow a government to be formed or by calling new elections.

Although the 80-year-old Marini has now emerged as the first candidate who appears to have some broad backing, there is no guarantee he will obtain enough votes in the secret ballot of lawmakers and regional representatives.

The parties have struggled for weeks to agree over the new president and Marini, who lost his seat in the February election, is known to be unpopular among many of the PD's senators and deputies.

Earlier on Wednesday the 5-Star Movement changed its candidate for president, saying it was backing academic and left-wing politician Stefano Rodota after its original choice, television journalist Milena Gabanelli, pulled out.

Rodota, who was president of the PD's predecessor, the Democratic Party of the Left (PDS), in the 1990s, could potentially get significant backing from elements of the PD who do not want to do a deal with Berlusconi.

Other candidates often cited are former prime ministers Giuliano Amato and Massimo D'Alema, who are thought to have Berlusconi's backing, and former European Commission president and prime minister Romano Prodi, who does not.

Amato and D'Alema are both handicapped by perceptions that they are insiders too closely linked to the discredited traditional political elite.

A two-thirds majority of 1,007 electors from the combined houses of parliament plus 58 regional delegates are required to elect the president in the first three rounds of voting.

After that a simple majority is enough, meaning the PD could use the fact it has more deputies than any other party to force through a candidate with the backing of smaller groups.

Voting begins at 10 a.m. (4 a.m.EDT) on Thursday and will proceed with two rounds per day until a president is elected.

As well as a ceremonial function, the head of the Italian state has a vital political role, a function Napolitano had to carry out during the 2011 financial crisis when he appointed Mario Monti to lead a technocrat administration.

(Additional reporting by Naomi O'Leary and James Mackenzie; Editing by Mark Heinrich)

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Attempt to end Italy crisis stalls, president mulls next move

By James Mackenzie

ROME (Reuters) - Italy's center-left made a last-ditch appeal to other parties on Thursday to clear the way for a new government before its leader, Pier Luigi Bersani, reports back to President Giorgio Napolitano later in the day.

Bersani, whose alliance fell short of the majority it would need to govern after last month's election, has made little headway in five days of talks with rival parties.

The stalemate in the euro zone's third-largest economy has been watched with growing alarm across Europe as the crisis in Cyprus increased concern about the renewal of market turmoil that would threaten the stability of the currency bloc.

On Thursday, the main indicator of market confidence, the spread between Italian 10-year bonds and their safer German counterparts widened to 350 basis points, some 30 points higher than the level seen before the February 24-25 election.

Both former Prime Minister Silvio Berlusconi's center-right bloc, the second largest force in parliament, and the anti-establishment 5-Star Movement, which holds the balance of power, have rebuffed Bersani's attempts to form a viable government.

However with only hours to go before Bersani must report to Napolitano on his exploratory efforts, officials from his Democratic Party refused to concede defeat.

"It often happens that the most delicate issues are resolved in the final phase," said Luigi Zanda, head of the PD's Senate group, urging other parties to help find a "positive solution".

Mindful of the risk of instability, Napolitano has insisted Bersani obtain firm guarantees of support from the other parties before he will give him a full mandate to form a government.

With prospects of a deal receding, options include naming an outsider to head a technocrat government like that of outgoing Prime Minister Mario Monti or a broad cross-party coalition.

PRESIDENT

Prospects that Monti may be asked to remain in office have faded since Foreign Minister Giulio Terzi quit this week in a shock move that showed the tensions in the caretaker government.

But Bersani's struggles have shown how hard it will be even for a new technocrat cabinet to win parliamentary support, increasing the chances of a snap new election.

For that to happen, however, a new head of state must be elected by parliament to succeed Napolitano, whose term ends in mid-May. Italian constitutional rules prevent a president from dissolving parliament during the final months of his mandate.

Even this task is politically fraught because Berlusconi wants to pick the new head of state, something Bersani rejects.

Underlining the challenges for the next government, a senior Bank of Italy official and the head of Italy's statistics agency ISTAT both said the government's latest economic forecasts may still be too optimistic, even after being sharply cut last week.

Last week the government said the economy, in its longest recession for 20 years, would contract 1.3 percent this year, compared with a previous forecast of a 0.2 percent shrinkage.

However, ISTAT head Enrico Giovannini told a parliamentary committee hearing on Thursday the result may be worse than that with no recovery until the end of the year or early 2014.

The lack of a government has increased concern that the slump will only get deeper.

"We need effective and credible economic policies to interrupt the recessionary spiral," Daniele Franco, a top central bank economist, told the committee.

(Additional reporting by Naomi O'Leary and Gavin Jones; editing by Barry Moody and Alistair Lyon)

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Could Amanda Knox be Extradited to Italy?

Today's ruling by Italy's Supreme Court ordering a new murder trial for Amanda Knox guarantees the legal drama will drag on for several more years and will be expensive.

It also raises the possibility that if Knox is found guilty and that verdict is upheld by Italy's Supreme Court, Knox could eventually face a request to extradite her and put her back in prison.

An extradition request would likely turn on whether being prosecuted again after being exonerated constitutes double jeopardy.

Knox and her ex-boyfriend Raffaele Sollecito were convicted in 2009 after a lengthy and controversial trial for the murder of her British roommate Meredith Kercher in 2007. Knox was sentenced to 26 years in prison while Sollecito got 25.

That verdict was tossed out in 2011 by an appeals court that blasted the prosecution's handling of critical DNA evidence and the case in general.

Knox had hoped today's Supreme Court ruling would uphold her innocence and put an end to her six year ordeal. Instead she was "shocked" when the court ordered the appeals court to retry the case.

Knox, 25, now faces years of legal maneuvering and hearings starting when the case is expected to go back to trial early next year.

FULL COVERAGE: The Amanda Knox Trial

Knox, who has already spent four years in an Italian prison, does not intend to return to Italy for the proceedings, possibly putting her lawyers at a disadvantage. She won't be able to testify on her own behalf and she won't be able to take advantage of Italy's right of "spontaneous declarations" in which the defendant can stand and make a statement to defend herself against particular testimony.

Her absence at the new trial could prompt the appellate court to declare her in contempt of court, but that carries no additional penalties.

The outcome of the retrial is certain to be appealed to the Supreme Court by whichever side loses.

If Knox is again convicted and the verdict is upheld by the Supreme Court, Italy would be expected to seek her extradition in order to put her back in prison.

"We've got a [extradition] treaty," said Bruce Zagaris, a Washington-based attorney who specializes in extradition cases. "The Senate has already ratified that treaty and decided that Italy is a country with which we ought to have a treaty. They wouldn't have ratified if they didn't think the Italian process was fair and due process was sufficient."

"She can try to fight extradition, but it will be an uphill battle," Zagaris said.

In the American legal world being retried for the same crime sounds like "double jeopardy," a principle in the U.S. judicial system and enshrined in the Constitution that outlaws being tried twice for the same crime.

American unease with double jeopardy could give Knox a "fighting chance" to appeal any extradition in a U.S. court, said Christopher L. Blakesley, a professor of international law University of Nevada Las Vegas.

"There's room to fight extradition," Blakesley said, "and double jeopardy is the spot to fight on…. In the treaty, we functionally accept their system of justice, but it's up to a magistrate to decide whether" the double jeopardy clause of the Constitution was violated and if that trumps the treaty.

Asked about Knox's prospects for extradition, a State Department spokesman said "we never talk about extradition from the podium," during the daily briefing for reporters, and said the U.S. would wait for the final explanation from the Italian Supreme Court before commenting.

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Knox, Sollecito to face Italy retrial in Kercher murder

By Virginia Alimenti and Catherine Hornby

ROME (Reuters) - Italy's top court on Tuesday ordered a retrial of American Amanda Knox and former boyfriend Raffaele Sollecito in the murder of British student Meredith Kercher, re-opening a case that prompted harsh criticism of the Italian justice system.

Kercher's half-naked body, with more than 40 wounds and a deep gash in the throat, was found in the apartment she shared with Knox in Perugia, where both were studying during a year abroad in 2007.

Prosecutors accused Knox and Italian Sollecito of killing the 21-year-old Leeds University student during a drug-fuelled sexual assault that got out of hand.

The two, who always professed their innocence, were initially found guilty in 2009 and sentenced to 26 and 25 years in prison respectively after a trial that grabbed headlines around the world.

In 2011, their convictions were quashed after forensic experts challenged evidence in the original trial, prompting accusations of a botched police investigation and leaving many aspects of the killing unexplained.

They were released after four years in prison and Knox returned to her family home near Seattle immediately afterwards.

On Tuesday, the Court of Cassation overturned the acquittal and accepted a request for a retrial from prosecutors and Kercher family lawyers who had criticized the earlier ruling as "contradictory and illogical".

Unlike law in the United States and some other countries, the Italian system does not contain so-called "double jeopardy" provisions that prevent a defendant being tried twice for the same offence.

The court has not yet provided a full reasoning of its decision and a date has not yet been set for the new trial, which will be held in an appeals court in Florence, rather than Perugia, where the original trials were conducted.

The decision was immediately welcomed by the Kercher family lawyer Francesco Maresca who said it would provide an opportunity to find out what happened to Meredith.

"This is an important day for the Italian justice system," he said outside the court, criticizing the earlier judgment acquitting Knox and Sollecito as "extremely superficial".

"I've spoken to the family and Stephanie, her sister, is very happy, she's trying to understand what happens now."

PAINFUL

Knox released a statement through her spokesman David Marriott describing the court's decision as "painful" and said the prosecution's theory had repeatedly been revealed as "unfounded and unfair,".

She has not yet discussed whether she will return to Italy for the trial, Marriott said.

Knox, dubbed "Foxy Knoxy" in many early media reports, was initially portrayed as a sex-obsessed "she devil" by prosecutors but a lobbying campaign by her family helped change perceptions and she is due to publish a book of memoirs in April.

"She was very sad, she thought that this nightmare was over," Carlo della Vedova, one of her legal team told reporters after speaking to Knox. "At the same time she is ready, we went through all this before, we are strong enough and strong enough to fight again."

Tuesday's ruling examined whether there were procedural irregularities which gave grounds for a retrial, rather than assessing the details of the case, which remain obscure in many particulars.

A lawyer for 29-year-old Sollecito said the decision was not a guilty verdict for her client but just meant the court wanted a more in-depth examination of some aspects of the case.

"Unfortunately we have to continue the battle," Giulia Bongiorno told reporters.

Sollecito was continuing studies in the northern city of Verona, another lawyer was quoted as saying by Ansa news agency.

Maurizio Bellacosa, a criminal law professor at Rome's LUISS University, said he expected the new trial would begin in less than a year.

If Knox is convicted of murder in the new trial, her lawyers will be able to appeal again, said criminal law expert Graziano Cecchetti from Italian law firm Giambrone Law.

Both experts said for now Knox was free to decide herself whether to return to Italy or not but the Italian government could request extradition if she is found guilty of the murder and her conviction is backed by the Court of Cassation.

'WHY PUT HER THROUGH THIS?'

Around Seattle, where Knox and her family live, people expressed support for their neighbor.

A "Free Amanda Knox" bumper sticker had been affixed to a red car in the driveway of Knox's mother's house. The message, "The world loves Amanda Knox" had been carved into a gray cement block that was propped against the garage.

A young woman who answered the door at the two-story house and identified herself as Amanda's younger sister declined to comment.

Nearby, neighbor Lois Silver said she had been saddened by the news that Italian authorities wanted to retry Knox.

"If there's no proof, why put her through this? I wish it were over for them," she said. "I wish they didn't have to go through this."

Robb Orr, a 35-year-old writer who said he lives in Amanda Knox's neighborhood, was sympathetic.

"The case seemed really poorly put together. It seemed more like a witch hunt," Orr said. "I am sure it was a horrible, horrible thing to go through, and it would be nice if she could just move on with her life."

Much of the attention of the case was focused on the carefree image of foreign students enjoying a year abroad in the medieval town in central Italy as well as on lurid stories of sex and heavy partying.

Prosecutors had said that Kercher was held down and stabbed after she resisted attempts by Knox, Sollecito and a third man, Ivorian Rudy Guede, to involve her in an orgy in the apartment the two women shared in the town.

However their case was weakened by forensic experts who undermined the credibility of DNA evidence provided by police and made strong criticisms of their first response procedures at the scene of the killing.

(Additional reporting by Eric Johnson and Laura Myers in Seattle and James Mackenzie and Gavin Jones; Editing by Matthew Tostevin)

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Italy foreign minister quits over India case

ROME (AP) — Italy's foreign minister resigned Tuesday to protest his government's decision to send two marines back to India to face trial in the deaths of two fishermen.

Minister Giulio Terzi made the surprise announcement to Parliament after offering a report on the case of the Italian marines to lawmakers. He denied the government had no knowledge of his March 11 decision not to send the two sailors back to face trial in Italy.

"I can no longer be part of this government," Terzi declared.

A career diplomat, Terzi said he was quitting in solidarity with the marines and because he disagreed with the government's decision to send them back but his "voice was not listened to." He also said wanted to safeguard Italy's image abroad.

Caretaker Premier Mario Monti expressed "astonishment" at the decision and said in a statement that he had not been informed ahead of time, even though they had met earlier in the day to discuss Terzi's report to lawmakers.

Monti said he would address the case in both houses of Parliament on Wednesday.

President Giorgio Napolitano, in the meantime, gave Monti the foreign ministry portfolio. Monti's caretaker government remains in place until a new government can be formed following inconclusive national elections last month. Center-left leader Pier Luigi Bersani, who is in consultations on forming a new government, declined comment on the case.

The sailors — Massimiliano Latorre and Salvatore Girone — were part of a military security team on a cargo ship when they fired at a fishing boat in 2012, killing two Indian fishermen. The marines said they mistook them for pirates.

The marines had been allowed to return to Italy to vote in the Feb. 24-25 national election and were scheduled to return to India on March 22 — as they had after being allowed to spend Christmas with the families in Italy.

Terzi announced on March 11 that they would not return to India, expressing concern that their rights were not being respected there. Italy has insisted that the shooting happened in international waters and that Rome should have jurisdiction.

Italy, however, sent them back last week, saying it had received written assurances that India would not impose the death penalty in the event of a conviction.

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Knox must wait 1 more day for Italy court decision

ROME (AP) — Italy's highest court delayed until Tuesday a decision on whether American student Amanda Knox will face a new trial in the murder of her British roommate — an unusual but not unprecedented move.

The court heard six hours of arguments Monday and spent several hours deliberating that and a handful of other cases before announcing it would issue a decision at 10 a.m. (0900 GMT) Tuesday on whether the 2011 acquittals of Knox and her Italian ex-boyfriend Raffaele Sollecito will stand.

Italian prosecutors have asked the high court to throw out the acquittals of Knox and Sollecito in the murder of 21-year-old British student Meredith Kercher and order a new trial.

The high court normally issues the decisions the same day it hears arguments. But prosecutor general Luigi Riello told reporters that "in very complex cases, it happens" that the court takes another day.

Lawyers for Sollecito declined to speculate on what the delay could mean for the decision. Sollecito's father was calm about the development.

"We have waited so many years, one night is not going to make a difference," Francesco Sollecito said outside the courthouse. He said he hadn't spoken to his son, who did not attend the hearing, about the day's proceedings.

Knox, meanwhile, was waiting anxiously in Seattle to hear if her long legal battle is over.

"She's carefully paying attention to what will come out," attorney Luciano Ghirga said as he arrived at Italy's Court of Cassation in Rome. "This is a fundamental stage. The trial is very complex."

Knox, now 25, and Raffaele Sollecito, who turns 29 on Tuesday, were arrested in 2007, shortly after Kercher's body was found in a pool of blood in her bedroom in the rented apartment she shared with the American and others in the university town of Perugia, where they were exchange students. Her throat had been slashed.

Prosecutors alleged that Kercher was the victim of a drug-fueled sexual assault.

Knox and Sollecito have both maintained their innocence, although they said that smoking marijuana the night Kercher was killed had clouded their recollections.

Knox and Sollecito were convicted and given long prison sentences: 26 years for Knox, 25 for Sollecito. But an appeals court acquitted them in 2011, criticizing virtually the entire case mounted by prosecutors. The appellate court noted that the murder weapon was never found, said that DNA tests were faulty and added that Knox and Sollecito had no motive to kill Kercher.

After nearly four years behind bars in Italy, Knox returned to her hometown of Seattle and Sollecito resumed his computer science studies. Knox is now a student at the University of Washington, according to her family spokesman, Dave Marriott.

In the second and final level of appeal, prosecutors are now seeking to overturn the acquittals, while defense attorneys say they should stand.

The court can decide to confirm the acquittal, making it final, or throw out the Perugia appellate court ruling entirely or partially, remanding the case to a new appeals court trial.

In that case, Italian law cannot compel Knox to return to Italy. The Italian appellate court hearing the case could declare her in contempt of court but that carries no additional penalties.

It is unclear what would happen if she was convicted in a new appeals trial.

"If the court orders another trial, if she is convicted at that trial and if the conviction is upheld by the highest court, then Italy could seek her extradition," Knox's lawyer Carlo Dalla Vedova said.

Italy is not obliged to seek her extradition but it could decide to do so. Then it would be up to the United States to decide if it honors the request. U.S. and Italian authorities could also come to a deal that would keep Knox in the United States.

Riello, the prosecutor general, argued before the court that there were ample reasons "not to bring down the curtain on the case."

Riello said the appellate court was too dismissive in casting aside DNA evidence that led to the conviction in the lower court, arguing that another trial could make way for more definitive testing.

Defense attorneys said they were confident the acquittals would be upheld.

"We know Raffaele Sollecito is innocent," said his attorney, Giulia Bongiorno, who called the entire case "an absurd judicial process."

Before the court, Bongiorno argued there was an "unending series of errors by scientific police" in how they handled evidence in the case, including the fact that the crime scene had been disturbed "and possibly contaminated" during the investigation.

A young man from Ivory Coast, Rudy Guede, was convicted of the slaying in a separate proceeding and is serving a 16-year sentence. Kercher's family has resisted theories that Guede acted alone.

The lawyer for the Kercher family, Francesco Maresca, said the family was likely to issue a statement when the decision is announced. They did not attend the arguments.

The court is also hearing Knox's appeal against a slander conviction for having accused a local pub owner of carrying out the killing. The man was held for two weeks based on her allegations, but was then released for lack of evidence.

Riello argued that conviction should stand because "you cannot drag in an innocent person while exercising your right to a defense."

Knox's lawyer Dalla Vedova said the slander verdict should be thrown out because Knox had not been advised that she was a suspect during the questioning.

"The girl was confused, worn out" after 14 hours of questioning by police that stretched overnight, Dalla Vedova said, adding that while Knox was alone, 36 investigators signed the interrogation sheet.

___

Associated Press writer Chris Grygiel contributed from Seattle.

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Italy president asks Bersani to see if can form government

By James Mackenzie

ROME (Reuters) - Italian parties reacted skeptically on Friday to center-left leader Pier Luigi Bersani's call for a government backed by all political forces, complicating President Giorgio Napolitano's efforts to end the stalemate left by last month's election.

Napolitano has ended consultations with the parties to try to form a government after the election which gave the center-left control of the lower house but left it short of a majority in the Senate and thus unable to govern alone.

He is expected to announce later on Friday whether he has decided to give Bersani a mandate to try to muster support from other parties, or has opted for some other solution, such as asking a respected outside figure to try to build a broad coalition.

With no party holding a majority in parliament, Italy - the euro zone's third largest economy - faces the prospect of weeks of uncertainty just as the bank crisis in Cyprus has revived fears of a renewed bout of financial market turmoil.

Bersani said late on Thursday that he hoped to be able to present a limited program of economic and institutional reforms that could be backed by all forces in parliament, but he faces resistance from the other parties.

"The reality is that whoever gets a mandate to form a new government has to be able to show they have a stable political majority already in place. And at this moment, Bersani can't be that person," said Renato Brunetta, the lower house leader of Silvio Berlusconi's center-right People of Freedom party (PDL).

If Bersani cannot gather enough support, Italian media have speculated that Napolitano could ask Senate speaker and former top anti-mafia judge Pietro Grasso to try to form a government. He has said he would be willing to serve the state in any way he can.

However the anti-establishment 5-Star Movement led by former comic Beppe Grillo has repeatedly said it will not back a government led by any other party, leaving Bersani needing a deal with the center-right if he is to have a chance of success.

Former Prime Minister Berlusconi, who has been lifted by recent opinion polls showing his support is rising, says the inconclusive election result shows that Italy has not made a clear choice and that the center-left does not have the right to govern alone.

He has called for a cross-party coalition with Bersani's Democratic Party (PD) that would give his group a share in government and the right to decide the next president to succeed Napolitano, whose term ends in May.

RECESSION

If no durable accord can be reached, Italy faces a return to the polls within months, delaying any prospect of substantial reform to its stagnant economy, now stuck in its longest recession in 20 years.

Napolitano, the head of state, has given no hint of what he intends to do beyond telling the speakers of parliament that it was "absolutely necessary" to form a government, suggesting he will try to avoid early elections if at all possible.

"President Napolitano did not make his intentions known in our meeting yesterday," Luigi Zanda, head of the PD's Senate group, told state radio RAI on Friday.

Financial markets have been watching the political uncertainty closely although there has so far been no sign of the panic that gripped investors during the 2011 crisis which brought down the last Berlusconi government.

The main barometer of confidence, the spread between yields on Italian and German 10-year government bonds, has risen since the beginning of the year by some 20 basis points to 320 points, well short of the level of more than 550 seen in late 2011.

However Italy's 2-trillion-euro public debt is vulnerable to any bond market turbulence and public finances have deteriorated sharply during the recession, despite the tax hikes and spending cuts imposed by outgoing Prime Minister Mario Monti.

Monti's caretaker government cut its economic forecasts on Thursday and now sees gross domestic product contracting by 1.3 percent this year following the 2.4 percent decline in 2012. The budget deficit is expected to hit 2.9 percent of output, just within EU limits.

(Editing by Pravin Char)

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Italy to return 2 marine murder suspects to India

ROME (AP) — Italy said it would return two marines to India by Friday to face murder charges in the shooting deaths of two fishermen, reversing a decision that escalated diplomatic tensions.

The government said Friday it decided to return the men after receiving written assurance from Indian authorities that their "fundamental rights" would be respected. Friday had been the return date originally agreed upon when India permitted the pair to travel to Italy to vote in national elections last month.

Marines Massimiliano Latorre and Salvatore Girone agreed to the decision and were to leave immediately and will live in the Italian embassy in New Delhi, officials said.

The move overturns a March 11 decision by the Italian Foreign Ministry that the marines would not go back because the decision to try them in India violated their rights.

The Indian Supreme Court ruled earlier this year that the men should be tried by a special court to be set up by the central government in consultation with the chief justice. The decision removed the case from the jurisdiction of the southern state of Kerala, near where the shooting took place.

The case had turned into a full-blown spat between India and Italy, with the Indian Supreme Court banning the Italian ambassador from leaving the country. Italy insisted that any restrictions on its ambassador's movements violated conventions on diplomatic relations.

The marines were part of a military security team on a cargo ship when they fired at a fishing boat in February 2012, killing the two fishermen. The marines said they mistook the fishing boat for a pirate craft.

India contends the shooting happened in Indian waters, while Italy has insisted the shooting happened in international waters during an international anti-piracy mission and Italy should have jurisdiction.

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Fugitive in Wife's Slaying Arrested in Italy

A man placed on the U.S. Marshals Service 15 Most Wanted Fugitive list for the execution-style murder of his estranged wife has been arrested in Bologna, Italy.

The Marshals Service says 42-year-old Miguel Torres had been charged with first-degree murder in Reading, Pa., following the September 2005 slaying.

After Barbara Torres obtained a protective order against her husband, Miguel Torres, he allegedly used a spare key to enter his wife's vehicle, hiding in the backseat until she left work. She spotted Torres when she approached, and she attempted to flee, but he got out of the vehicle and allegedly walked up behind her and shot her in the head, near a county building.

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Fugitive hedge fund manager arrested in Italy

(Reuters) - German hedge fund manager Florian Homm, who had been a fugitive for more than five years, was arrested in Italy on U.S. fraud charges, according to a statement from the U.S. attorney's office in Los Angeles.

Homm, 53, the founder and chief investment officer of Absolute Capital Management Holdings Ltd, is accused of orchestrating a market manipulation scheme to artificially improve the performance of his funds, a fraud that led to at least $200 million in losses to investors. He was arrested Friday at the Uffizi Gallery art museum in Florence.

An attorney for Homm could not immediately be reached for comment.

Absolute Capital, based in the Cayman Islands, managed nine hedge funds from 2004 to September 2007.

The criminal complaint filed in U.S. District Court in Los Angeles alleges that Homm directed the hedge funds to buy billions of shares of U.S.-based penny stocks and trade them among themselves to inflate their prices and the funds' asset values while generating additional fees for Homm and Absolute Capital.

Stock purchases were made through Hunter World Markets Inc, a broker-dealer in Los Angeles co-owned by Homm.

Homm also allegedly dumped tens of millions of dollars' worth of his own shares in Absolute Capital before resigning from the firm in the middle of the night on September 18, 2007, causing at least $200 million in losses to investors in the hedge funds. The scheme netted Homm and accomplices more than $53 million, according to the U.S. attorney.

In November 2012, Homm published a book titled "Rogue Financier: The Adventures of an Estranged Capitalist."

He faces four felony charges: conspiracy to commit wire fraud, wire fraud, conspiracy to commit securities fraud, and securities fraud. Homm was arrested by Italian authorities after the United States submitted a request for a provisional arrest with officials in Rome.

The U.S. Securities and Exchange Commission two years ago also filed a civil lawsuit in Los Angeles federal court against Homm and four other defendants accusing them of stock manipulation to inflate the value of Absolute Capital.

(Reporting By Susan Kelly in Chicago; editing by Gunna Dickson)

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Analysis: EU needs "who lost Italy" debate on austerity

BRUSSELS (Reuters) - European policymakers should be asking themselves "who lost Italy" after a grassroots revolt against austerity, unemployment and the political elite caused an electoral earthquake in the euro zone's number three economy.

Instead, most are insisting that their policy mix to fight the currency area's debt crisis is right, even though the latest EU forecasts have pushed any prospect of meaningful economic recovery in southern Europe back into the middle distance.

A surge in support for anti-euro populist Beppe Grillo and the surprise resurrection of former Prime Minister Silvio Berlusconi on an anti-austerity platform in last week's election have plunged Rome into political deadlock.

Italy, which had been governed by respected technocrat Mario Monti for 15 months since Berlusconi's last government fell, is far from the worst affected by the three-year-old debt crisis.

Unemployment there stands at 11.7 percent, less than half the rate of Greece and Spain, where one of every two young people is without a job.

If a milder recession and less severe spending cuts and tax rises can cause such a social and electoral revolt in Italy, the risks of an explosion in Greece and Spain ought to be greater.

Yet the official reaction from Brussels and Frankfurt is to act as if nothing, or almost nothing, had happened.

"The crisis is not yet over and efforts must not be relaxed," European Commission President Jose Manuel Barroso said in a joint statement with Monti two days after the election.

At a Reuters Summit on the future of the euro zone, Barroso appealed to European leaders to stay the course and "not give in to populism". Despite the bleak growth forecasts, structural reforms were starting to bear fruit, he said.

Barroso reeled off figures showing current account deficits in Portugal, Spain, Italy and Greece were shrinking and Ireland was back in surplus. Exports from Spain and Portugal were rising and the labor competitiveness gap between northern and southern Europe was narrowing.

Those numbers have a flipside. Payments imbalances are down mostly because those countries' imports have shrunk due to sinking demand. The labor cost gap has declined largely due to mass layoffs in southern states rather than productivity gains.

Exports account for less than 20 percent of the Iberian countries' output, less than half Germany's ratio and too little to offer a fast track to recovery.

SOCIAL CRISIS

While the European Central Bank removed the danger of a financial meltdown of the euro zone with its bond-buying plan, there is now a growing risk of a social crisis that could lead to one or more southern countries leaving the currency area.

"I absolutely think it can get a lot worse," said Clemens Fuest, the incoming chief of Germany's respected ZEW economic research institute.

"There is really the current plausible scenario for a break-up of the currency union. It may very well be that in these countries at some point the population will say 'we don't believe things will get better'," he told the Reuters Summit.

The degree of despair would have to be high to risk leaving the euro area, "but if things continue, if unemployment goes up to 30 percent... in Spain, there certainly is a danger that might happen".

Zsolt Darvas of the Bruegel think-tank in Brussels said southern European countries were trapped in a downward spiral of economic contraction and rising debt for an unknown duration but had no alternative to fiscal consolidation.

The only way out was to alter Europe's fiscal policy mix by stimulating demand in northern Europe, notably with tax cuts in Germany, and giving the European Investment Bank a huge capital increase to lend to companies in southern Europe, he said.

Using the EIB to inject the equivalent of 2-3 percent of gross domestic product a year into south European economies for a limited number of years would be the most effective and politically feasible way to revive growth, Darvas said.

No such plans are under consideration in the European Union, and German, Dutch and Finnish voters remain deeply hostile to any fiscal transfers to southern Europe.

With Germany facing its own general election in September, followed by the usual period of coalition negotiations, it is hard to imagine any major policy shift this year.

EU growth initiatives so far have been on a far more modest scale, including a small boost to EIB capital last year and a recently created 6 billion euro youth employment fund due to take effect next January to support job training and mobility.

Monti warned repeatedly last year that anti-European populists would gain ground in the south unless the euro zone did more to support his efforts and those of Spanish Prime Minister Mariano Rajoy by bringing down borrowing costs.

Those costs did fall significantly after the ECB announced its bond-buying initiative in September, but Monti's appeal for more financial solidarity from Germany fell on deaf ears.

Whether his election debacle, after European leaders encouraged him to enter the race, will sway minds in the EU remains to be seen.

For the moment, their key priority is to help Ireland and Portugal return to capital markets later this year to demonstrate success for their bailout and adjustment programs.

French Finance Minister Pierre Moscovici, also speaking at the Reuters Summit, was one of the rare voices to say the Italian voter backlash showed that austerity had gone far enough and it was time to strengthen growth.

His German counterpart, Wolfgang Schaeuble, a leading advocate of austerity during the crisis, drew no such lesson, saying European policies were not to blame for greater inequality and economic divergence between north and south.

"We need to continue on this path, but we will have setbacks," Schaeuble said.

It may take another, bigger jolt than Italy's election to spur euro zone leaders to change course, if they ever do.

(Writing by Paul Taylor; Editing by Jeremy Gaunt)

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Analysis: EU needs "who lost Italy" debate on austerity

BRUSSELS (Reuters) - European policymakers should be asking themselves "who lost Italy" after a grassroots revolt against austerity, unemployment and the political elite caused an electoral earthquake in the euro zone's number three economy.

Instead, most are insisting that their policy mix to fight the currency area's debt crisis is right, even though the latest EU forecasts have pushed any prospect of meaningful economic recovery in southern Europe back into the middle distance.

A surge in support for anti-euro populist Beppe Grillo and the surprise resurrection of former Prime Minister Silvio Berlusconi on an anti-austerity platform in last week's election have plunged Rome into political deadlock.

Italy, which had been governed by respected technocrat Mario Monti for 15 months since Berlusconi's last government fell, is far from the worst affected by the three-year-old debt crisis.

Unemployment there stands at 11.7 percent, less than half the rate of Greece and Spain, where one of every two young people is without a job.

If a milder recession and less severe spending cuts and tax rises can cause such a social and electoral revolt in Italy, the risks of an explosion in Greece and Spain ought to be greater.

Yet the official reaction from Brussels and Frankfurt is to act as if nothing, or almost nothing, had happened.

"The crisis is not yet over and efforts must not be relaxed," European Commission President Jose Manuel Barroso said in a joint statement with Monti two days after the election.

At a Reuters Summit on the future of the euro zone, Barroso appealed to European leaders to stay the course and "not give in to populism". Despite the bleak growth forecasts, structural reforms were starting to bear fruit, he said.

Barroso reeled off figures showing current account deficits in Portugal, Spain, Italy and Greece were shrinking and Ireland was back in surplus. Exports from Spain and Portugal were rising and the labor competitiveness gap between northern and southern Europe was narrowing.

Those numbers have a flipside. Payments imbalances are down mostly because those countries' imports have shrunk due to sinking demand. The labor cost gap has declined largely due to mass layoffs in southern states rather than productivity gains.

Exports account for less than 20 percent of the Iberian countries' output, less than half Germany's ratio and too little to offer a fast track to recovery.

SOCIAL CRISIS

While the European Central Bank removed the danger of a financial meltdown of the euro zone with its bond-buying plan, there is now a growing risk of a social crisis that could lead to one or more southern countries leaving the currency area.

"I absolutely think it can get a lot worse," said Clemens Fuest, the incoming chief of Germany's respected ZEW economic research institute.

"There is really the current plausible scenario for a break-up of the currency union. It may very well be that in these countries at some point the population will say 'we don't believe things will get better'," he told the Reuters Summit.

The degree of despair would have to be high to risk leaving the euro area, "but if things continue, if unemployment goes up to 30 percent... in Spain, there certainly is a danger that might happen".

Zsolt Darvas of the Bruegel think-tank in Brussels said southern European countries were trapped in a downward spiral of economic contraction and rising debt for an unknown duration but had no alternative to fiscal consolidation.

The only way out was to alter Europe's fiscal policy mix by stimulating demand in northern Europe, notably with tax cuts in Germany, and giving the European Investment Bank a huge capital increase to lend to companies in southern Europe, he said.

Using the EIB to inject the equivalent of 2-3 percent of gross domestic product a year into south European economies for a limited number of years would be the most effective and politically feasible way to revive growth, Darvas said.

No such plans are under consideration in the European Union, and German, Dutch and Finnish voters remain deeply hostile to any fiscal transfers to southern Europe.

With Germany facing its own general election in September, followed by the usual period of coalition negotiations, it is hard to imagine any major policy shift this year.

EU growth initiatives so far have been on a far more modest scale, including a small boost to EIB capital last year and a recently created 6 billion euro youth employment fund due to take effect next January to support job training and mobility.

Monti warned repeatedly last year that anti-European populists would gain ground in the south unless the euro zone did more to support his efforts and those of Spanish Prime Minister Mariano Rajoy by bringing down borrowing costs.

Those costs did fall significantly after the ECB announced its bond-buying initiative in September, but Monti's appeal for more financial solidarity from Germany fell on deaf ears.

Whether his election debacle, after European leaders encouraged him to enter the race, will sway minds in the EU remains to be seen.

For the moment, their key priority is to help Ireland and Portugal return to capital markets later this year to demonstrate success for their bailout and adjustment programs.

French Finance Minister Pierre Moscovici, also speaking at the Reuters Summit, was one of the rare voices to say the Italian voter backlash showed that austerity had gone far enough and it was time to strengthen growth.

His German counterpart, Wolfgang Schaeuble, a leading advocate of austerity during the crisis, drew no such lesson, saying European policies were not to blame for greater inequality and economic divergence between north and south.

"We need to continue on this path, but we will have setbacks," Schaeuble said.

It may take another, bigger jolt than Italy's election to spur euro zone leaders to change course, if they ever do.

(Writing by Paul Taylor; Editing by Jeremy Gaunt)

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Queen Elizabeth cancels Italy visit over health - presidency

ROME (Reuters) - Queen Elizabeth has cancelled a trip to Italy this week because of health reasons, the Italian presidency announced on Sunday.

The Queen was to have visited Italy March 6-7 as a guest of Italian President Giorgio Napolitano.

The monarch cancelled a visit to the Welsh city of Swansea because of a stomach upset on March 1.

The president's office said it had been informed about the cancellation by Britain's ambassador to Rome, Christopher Prentice, who told Italian officials that the Queen needed "medical checks".

Queen Elizabeth marked 60 years on the throne last year and remains hugely popular in Britain.

(Reporting by Naomi O'Leary)

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Italy parties seek way out of election stalemate

ROME (Reuters) - Italy's stunned political parties searched for a way forward on Tuesday after an inconclusive election gave none of them a parliamentary majority and threatened prolonged instability and a renewal of the European financial crisis.

The results, notably the dramatic surge of the anti-establishment 5-Star Movement of comic Beppe Grillo, left the center-left bloc with a majority in the lower house but without the numbers to control the upper chamber, the Senate.

Financial markets fell sharply at the prospect of a stalemate that reawakened memories of the crisis that pushed Italy's borrowing costs toward unsustainably high levels and brought the euro zone to the brink of collapse in 2011.

"The winner is: Ingovernability," ran the headline in Rome newspaper Il Messaggero, reflecting the deadlock the country will have to confront in the next few weeks as sworn enemies are forced to work together to form a government.

Ratings agency Standard & Poor's said on Tuesday that policy choices of the next Italian government would be crucial for the country's creditworthiness, underlining the need for a coalition that can agree on new reforms.

Pier Luigi Bersani, head of the center-left Democratic Party (PD), has the difficult task of trying to agree a "grand coalition" with former prime minister Silvio Berlusconi, the man he blames for ruining Italy, or striking a deal with Grillo, a completely unknown quantity in conventional politics.

The alternative is new elections either immediately or within a few months, although both Berlusconi and Bersani have indicated that they want to avoid a return to the polls if possible: "Italy cannot be ungoverned and we have to reflect," Berlusconi said in an interview on his own television station.

For his part, Grillo, whose movement won the most votes of any single party, has indicated that he believes the next government will last no more than six months.

"They won't be able to govern," he told reporters on Tuesday. "Whether I'm there or not, they won't be able govern."

He said he would work with anyone who supported his policy proposals, which range from anti-corruption measures to green-tinted energy measures but rejected suggestions of entering a formal coalition: "It's not time to talk of alliances... the system has already fallen," he said.

The election, a massive rejection of the austerity policies applied by Prime Minister Mario Monti with the backing of international leaders from U.S. President Barack Obama to German Chancellor Angela Merkel, caused consternation across Europe.

German Finance Minister Wolfgang Schaeuble put a brave face on it, saying "that's democracy".

Spanish Foreign Minister Jose Manuel Garcia-Margallo was more pessimistic.

"This is a jump to nowhere that does not bode well either for Italy or Europe," he said.

A long recession and growing disillusionment with mainstream parties and tax-raising austerity fed a bitter public mood and contributed to the massive rejection of Monti, whose centrist coalition was relegated to the sidelines.

Projections by the Italian center for Electoral Studies showed that the center-left will have 121 seats in the Senate, against 117 for the center-right alliance of Berlusconi's PDL and the regionalist Northern League. Grillo would take 54.

That leaves no party with the majority in a chamber which a government must control to pass legislation.

"THE BELL IS RINGING"

On a visit to Germany, President Giorgio Napolitano said he would not comment until the parties had consulted with each other and Bersani called on Berlusconi and Grillo to "assume their responsibilities" to ensure Italy could have a government.

He warned that the election showed austerity policies alone were no answer to the economic crisis and said the result carried implications beyond Italy.

"The bell is ringing for Europe as well," he said in his first public comments since the election.

He said he would present a limited number of reform proposals to parliament, focusing on jobs, institutional reform and European policy.

However forming an alliance may be long and difficult and could test the sometimes fragile internal unity of the mainstream parties.

"The idea of a majority without Grillo is unthinkable. I don't know if anyone in the PD is considering it but I'm against it," said Matteo Orfini, a member of Bersani's PD secretariat.

"The idea of a PD-PDL government, even if it's backed by Monti, doesn't make any sense," he said.

For his part, Berlusconi won a boost when his Northern League ally Roberto Maroni won the election to become regional president of Lombardy, Italy's economic heartland and one of the richest and most productive areas of Europe.

For Italian business, with an illustrious history of export success, the election result brought dismay that there would be no quick change to what they see as a regulatory sclerosis that has kept the economy virtually stagnant for a decade.

"This is probably the worst possible scenario," said Francesco Divella, whose family began selling pasta under its eponymous brand in 1890 in the southern region of Puglia.

Berlusconi's campaign, mixing sweeping tax cut pledges with relentless attacks on Monti and Merkel, echoed many of the themes pushed by Grillo and underlined the increasingly angry mood of the Italian electorate.

But even if the next government turns away from the tax hikes and spending cuts brought in by Monti, it will struggle to revive an economy that has scarcely grown in two decades.

Monti was widely credited with tightening Italy's public finances and restoring its international credibility after the scandal-plagued Berlusconi, who is currently on trial for having sex with an under-age prostitute.

However, Monti struggled to pass the kind of structural reforms needed to improve competitiveness and lay the foundations for a return to economic growth. A weak center-left government may not find it any easier.

The view from some voters, weary of the mainstream parties, was unrepentant: "It's good," said Roger Manica, 28, a security guard in Rome, who voted for the center-left PD.

"Next time I'll vote 5-Star. I like that they are changing things, even if it means uncertainty. Uncertainty doesn't matter to me, for me what's important is a good person who gets things done," he said. "Look how well they've done."

(Additional reporting by Barry Moody, Gavin Jones, Lisa Jucca, Steven Jewkes, Steve Scherer, Catherine Hornby and Massimiliano Di Giorgio, Annika Breidthardt in Berlin. Writing by Philip Pullella and James Mackenzie; Editing by Peter Graff)

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Comic's protest movement shakes up Italy election

MILAN (AP) — The burly man with a shock of silver curls and a scruffy beard gesticulates wildly on the Milan's Piazza del Duomo, unleashing a sprawling diatribe against the political establishment.

"Send them home, send them home!" Beppe Grillo cries, as tens of thousands of supporters send up a deafening cheer.

Crisis-hit Italians are fed up. And no one is tapping that vein of outrage better than comic-turned-political agitator Grillo and his anti-establishment 5 Star Movement.

Grillo fills piazzas from Palermo deep in the south to Verona up north with Italians who seem to get some catharsis from his rants against the politicians who drove the country to the brink of financial ruin, the captains of industry whose alleged illegal shenanigans are tarnishing prized companies — and the bankers who aided and abetted both.

Grillo's campaign is significant not only because he shows strong chances of being the third — some project even the second — party in Parliament after the Sunday and Monday vote. The 5 Star Movement is the strongest protest party ever seen in Italy, creating a fluid and unpredictable electorate at a time when the nation needs a clear direction to fight its economic woes. A strong election showing for Grillo could hinder coalition-building efforts among mainstream parties, leading to a period of political paralysis.

"Grillo cannot be underestimated," said Renato Mannheimer, one of Italy's most respected pollsters. "He is very important,"

"More than protest, Grillo is an expression of disappointment in this political class. His followers are not anti-political. Most are interested in politics, but these politicians disgust them."

The most recent polls of voter sentiment show Grillo in third place, with 17 percent of the vote, behind Pier Luigi Bersani, the center-left candidate for premier, who enjoys 33 percent of the vote and Silvio Berlusconi's center-right coalition with the Northern League in second with 28 percent. Premier Mario Monti's centrist coalition is preferred by 13 percent of voters in the COESIS poll of 6,212 respondents, which had a margin of error of plus or minus 1.2 percent.

A trading scandal at Italy's third largest bank, Monte dei Paschi di Siena, as well as accusations of corruption at the government-controlled Finmeccanica and the Italian gas and oil giant Eni have served recently to push a stream of outraged voters into Grillo's arms.

"What happened with the banks, with MontePaschi, reignited interest in Grillo. Grillo is credible on those issues. In Italy, banks and politicians are the most disliked actors on the scene," said Roberto D'Alimonte, a political science professor and commentator for financial daily il Sole 24 Ore.

Critics say that Grillo is good at tapping into voter anger — getting to the heart of everything that's wrong with the ruling class — but has few constructive ideas of own for helping Italy emerge from crisis. Monti, in particular, has called Grillo's success is his "greatest worry."

"The people who vote for Grillo and who would vote yes on a referendum on exiting the euro should then fill the piazzas to protest against the catastrophic state that would befall Italy," Monti said recently. "It takes protests, but also proposals."

Pollsters say Grillo's true strength may even be underestimated in the polls because voters could be embarrassed to admit they plan to vote for a former comedian.

While the 64-year-old comic from Genoa has firmly captured the Italian Zeitgeist, many of his messages are raising concern among seasoned political observers, not just political opponents. Grillo's staunchly anti-euro stance has tapped growing animosity toward the EU, which is viewed by many Italians as the architect of painful austerity.

It remains unknown how members of Grillo's movement will behave once in parliament. Grillo himself is not seeking office, due to a manslaughter conviction for a 1981 car accident that killed two friends and their young son.

Certainly, Grillo has shown no willingness to cooperate with existing parties, and many of his candidates lack political experience — which the movement's supporters consider to be an advantage.

Grillo is the top pick among first-time voters who find in him an expression for their rebellion. He is also picking up support from disaffected backers of the populist Northern League, who are unhappy that their leaders teamed up with Berlusconi.

It is unclear how many of the 30 percent of Italy's undecided voters will throw in their lot with the comic. Mannheimer believes they will be many.

Grillo's campaign to upend Italian politics is anything but routine.

In a nation where the people get most of their information from television — dominated in part by Berlusconi's media empire — Grillo eschews TV, a medium that shunned him for years, and forbids candidates running under his banner from appearing on air at the risk of being booted from the movement.

He seeks more direct contact with his followers, in piazzas and through his blog, one of the most popular in Italy. He approaches his political appearances as he does his stadium comedy routines: He speaks and the audience listens. The one-way flow has led to criticism that he refuses to engage in debates with opponents or even supporters — though that has done little to stem his rise.

"However it goes, and whoever wins," columnist Beppe Severgnini wrote in Corriere della Sera, "this will be remembered as the elections of Beppe Grillo."

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