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ROME (Reuters) - Italy's president Giorgio Napolitano is set to announce on Wednesday his choice of prime minister to form a new government and pull the euro zone's third largest economy out of a two-month political rut.
The new coalition government, which could take office in a matter of days, would be backed primarily by the rivals on the centre-left and centre-right, the same parties that had refused to cut a deal since national elections in late February.
The person in pole position to receive the mandate is former Prime Minister Giuliano Amato, although the mayor of Florence, Matteo Renzi and centre-left deputy leader Enrico Letta have also emerged as possible candidates.
Silvio Berlusconi's People of Freedom (PDL), the centre-left Democratic Party (PD) and the centrist Civic Choice movement of outgoing premier Mario Monti have all said they would cooperate with whoever Napolitano chooses.
"Given the crisis the country finds itself in, the country needs a strong, a durable government that can make important decisions ...," Berlusconi said after meeting Napolitano.
Letta, of the badly fractured PD, said his party would back any government committed to tackling the "social-economic emergency," and enacting serious political reform, including changes to a dysfunctional electoral law.
At the election, the centre-left narrowly won a majority in the lower house but failed to win control of the Senate and was not able to form a government.
Hopes that the impasse would soon be over gave a further boost to financial markets on Tuesday, with the yield on 10-year Italian government bonds dropping below 4 percent and the spread, or risk premium over German bonds, narrowing further.
Italy's economy has been the most sluggish in Europe for more than a decade and mired in a deep recession since the middle of 2011, with no recovery in sight.
Napolitano bent the will of the uncollaborative parties on Monday when he was inaugurated for an unprecedented second term. He berated the parties for their "irresponsibility" in prolonging a political deadlock for nearly two months.
He threatened to resign unless the parties agreed to cooperate and find some middle ground on much needed reforms.
The PD has emerged the most scarred from the crisis.
Deep internal divisions forced its leader, Pier Luigi Bersani, to resign after the PD's inability to cut a deal with either Berlusconi's centre-right or the shock new third political force, Beppe Grillo's 5-Star Movement.
Berlusconi has capitalised on the centre-left's woes. One poll gave the centre-right a clear lead of around 8 points.
The anti-establishment 5-Star Movement of former comedian Grillo, which won a quarter of the vote and speaks for millions of Italians disillusioned with an entire political class, told Napolitano it would sit in opposition and may support specific reforms.
The Left Ecology Freedom party (SEL), a former partner of the PD, and Berlusconi's allies in the Northern League also said they would not join a coalition led by Amato.
Editing by Robin Pomeroy