March 5, 2018 / 6:08 PM / 14 days ago

UPDATE 2-Italy's Renzi quits party helm, rules out deals to form government

* Renzi resigns but says will stay until government formed

* Rules out alliances, slams anti-system rivals

* Support for PD has halved since 2014 (Writes through with refusal to strike deals, quotes, background)

By Isla Binnie

ROME, March 5 (Reuters) - Former Italian prime minister Matteo Renzi resigned on Monday as leader of the centre-left Democratic Party (PD) after a bruising election defeat, but pledged that his party would not strike deals with the anti-establishment parties that voters favoured.

The PD took around 19 percent of the vote in Sunday’s ballot, its worst result since its creation in 2007, despite presiding over a modest recovery in the euro zone’s third-largest economy.

Beaten by the anti-establishment 5-Star Movement and a centre-right coalition dominated by the eurosceptic League, Renzi acknowledged the defeat at PD headquarters in Rome.

“It is obvious that I will leave the helm of the PD,” said Renzi, who quit as prime minister when Italians voted against him in a 2016 referendum on constitutional reform, but returned as head of the PD.

He said he would not step down until a government is formed, and that in the meantime his party would shun the coalition talks which will be necessary as no party or alliance got enough votes for a working majority.

“The Italian people have asked us to be in opposition and that is where we will go,” Renzi said.” We will never form a government with anti-system forces.”

This was a reference to 5-Star and the League, who both said on Monday they must be in government, as investors dumped Italian government bonds.

Renzi hit out bitterly at criticism during the campaign of himself and his party.

“If we are mafiosi, if we are corrupt and unworthy of running as candidates, if our hands are covered in blood, you know what? Form a government without us.”

Party rivals have long complained Renzi moved the PD too far to the right and led with a domineering, autocratic hand, leading to a small left-wing group splitting off last year.

“Renzi has been obliterated in what is perhaps the shortest boom-to-bust cycle of Italy’s political history,” Francesco Galietti, political analyst at Policy Sonar, said in a note.

Sunday’s result was a stark contrast to a high of more than 40 percent reached at European elections in 2014 — a vote of confidence which legitimised Renzi’s power grab earlier that year in an internal party coup.

Young by Italian political standards and ambitious, Renzi was initially the darling of the industrial and financial elite, and was dubbed the “Demolition Man” for his pledge to do away with a creaking old establishment.

But the slow pace of the recovery undermined the credibility of his reform effort, and he eventually acknowledged that he had made a mistake by turning the constitutional reform referendum into a vote on his leadership.

Some PD officials sharply criticised him for not stepping down immediately. “When a leader resigns it’s serious, either they resign or they don’t,” Senate leader Luigi Zanda said a in a statement.

“To announce resignation and postpone it in order to carry on running the party and the institutional stages in the coming weeks is impossible to explain.” (Reporting by Isla Binnie Editing by Catherine Evans)

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