* Deadlocked Italy could face snap summer election
* Markets fall because of political uncertainty
* Far-right League seen rising fast in polls
By Crispian Balmer
ROME, May 8 (Reuters) - Former Prime Minister Silvio Berlusconi’s Forza Italia party rebuffed calls on Tuesday for it to stand aside to allow the formation of a coalition government, pushing Italy closer to an unprecedented summer re-vote.
Italian markets fell sharply as investors feared a new election in the wake of an inconclusive March 4 ballot would further benefit the far-right League and anti-establishment 5-Star Movement at the expense of mainstream groups.
The March vote saw a centre-right alliance, which includes Forza Italia and the League, winning the most seats, while 5-Star emerged as the biggest single party.
Both groups fell well short of a majority and although 5-Star says it is willing to hook up with the League, it has refused to deal with the scandal-plagued Berlusconi, seeing him as a symbol of political corruption.
The League does not want to abandon its old ally, saying it would betray voters who had backed their alliance, but it is putting increasing pressure on him to stand aside voluntarily.
“We are continuing to ask Berlusconi to make a gesture of responsibility and help us give this country a government,” said senior League politician Giancarlo Giorgetti, indicating he wanted Forza Italia to agree to sit out of a government deal.
Forza Italia swiftly rejected the idea, as it has for weeks.
“Today, to ask Forza Italia to give external support (to a government) seems a very bad move which we an only say no to,” said Maria Stella Gelmini, Forza Italia leader in the lower house of parliament.
Forza Italia faces a lose-lose situation. If it gives in to the League, it risks becoming an irrelevance in parliament. If it pushes for a re-vote, opinion polls suggest it will cede significant ground to its increasingly buoyant ally.
An SWG poll released on Tuesday showed the League, which has presented itself as the voice of reason in the political impasse, on 24.2 percent against the 17.4 it took in March, while Forza Italia was on just 9.4 percent from 14 percent.
The same survey showed 5-Star and the Democratic Party (PD) broadly unchanged from their election results on around 32 percent and 19 percent respectively.
President Sergio Mattarella, a key player in Italian politics, is eager to avoid an immediate election, fearing it will result in another stalemate and damage the economy.
He said on Monday he planned to nominate a “neutral government” to draw up a 2019 budget to stave off the threat of an automatic increase in sales taxes that would be triggered because of missed deficit targets.
A source in his office said the president would name the new prime minister on Wednesday or Thursday in the hope that parliament will give the nominee the necessary confidence votes to pursue a limited mandate that would expire in December.
That looks highly unlikely, with both the League and 5-Star highly hostile to the idea.
“We are doing everything possible to form a political government and thereby respect the will of the Italians, but if this isn’t possible there can be no neutral government,” Giorgetti said.
If parliament rejects the president’s pleas, then the earliest possible date for an election would be July 22, when many Italians will have gone on holiday, meaning turnout could slump.
Italy traditionally holds its national elections in the spring and the latest it has ever voted was June 26, in 1983. (Reporting by Crispian Balmer; editing by Andrew Roche)