Markets brace for crucial Italy election test

Sun Feb 24, 2013 6:02pm EST
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By Lisa Jucca

MILAN (Reuters) - Investors are awaiting the outcome a wide open Italian election that could trigger a sell-off in stocks and bonds and renew concerns about the euro if the polls bring an unstable government.

Polling stations open for a second and final day on Monday and exit polls will be published soon after they close at 3 p.m. (1400 GMT).

Opinion polls have suggested the center-left Democratic Party (PD) of Pierluigi Bersani could secure a narrow victory in the recession-hit country, the euro zone's third-largest economy.

But the rise of anti-establishment comedian Beppe Grillo's 5-Star Movement and the impressive comeback of center-right leader Silvio Berlusconi have cast doubt over Bersani's ability to govern even if he forms a coalition with the centrist party of outgoing technocrat Prime Minister Mario Monti.

Exit polls soon after 1400 GMT could spark an initial market reaction although a clear political picture may emerge well after market close. Official results are expected by early Tuesday.

"If we don't have an indication of clear winner, there will be pressure on Italian bond yields," said Ishaq Siddiqi, market strategist with trading house ETX Capital who said markets were expecting a Bersani win.

"If this is confirmed, there should be a short-lived positive reaction and the euro should go up," he said.

"But next immediate question for the market will be how viable the winning coalition will be and whether it is able to continue with much-needed reforms."   Continued...

A woman casts her vote in a polling station in Rome February 24, 2013. REUTERS/Yara Nardi