Analyst View
The failure to find a working political coalition or even reforming a technocratic-based government as a last chance saloon option will result in mounting financial pressures on Italy. This could take the form of rising borrowing costs across the debt maturity range to painfully high levels in conjunction with a continued squeeze on bid-to-cover ratios, which could force Italy to approach the European Stability Mechanism (ESM) to request a precautionary credit line. This would allow the ECB to fire-up its bond-buying programme," says Raj Badiani from IHS Global Insight.

"However, we continue to assume that Italy will remain reluctant to approach the ESM, and can lean on considerable supports, primarily not having any unforeseen financing requirements while enjoying a comfortable primary budget surplus. Ultimately, Italy would need a very firm shove to approach the ESM, with any approach unlikely to occur until every potential political compromise has been explored," he says in a note.

Analyst View
"The market implications are not positive in our view: we see risks of no agreement or slow progress on a grand coalition over the next few days. Even if an agreement is reached we see a very weak political mandate for further austerity measures and any type of structural reforms. This coupled with recent weakness in some macro releases, is likely to halt the progress on the virtuous circle of improving financial conditions, lower volatility and increasing investor appetite for riskier assets such as peripheral bonds," says J.P. Morgan European Rates Strategy in a note.

"Although we believe tail risk is greatly reduced relative to last summer, we recommend investors to open risk-off trades," the note added.

Analyst View
Fabio Fois, an economist at Barclays bank, said: "Political instability is likely to prevail in the near term and slow the implementation of much needed structural reforms unless a grand coalition among centre-left, centre-right and centre is formed."

Berlusconi ally seen leading Lombardy regional election- TV poll

An ally of Silvio Berlusconi is leading in the vote for the Lombardy regional government, a key race that could have a major impact on national politics, according to an opinion poll published on SkyTG 24.

The poll, first issued on Monday and repeated on Tuesday, points to a win for Northern League leader Roberto Maroni that could reinforce the coalition between Berlusconi's centre-right People of Freedom (PDL) party and the pro-devolution League.

The Lombardy ballot, which took place on the same day as the general election which failed to produce a parliamentary majority, has no direct effect on the national vote but a loss for Maroni would be a blow to the fragile centre-right alliance.

The Sky Italia poll gave Maroni taking 38 percent of the vote, three points ahead of his nearest rival.

Counting in the regional poll began on Tuesday and a result is not expected until later in the afternoon.

Italy parties seek way out of election stalemate

Italy's stunned political parties looked for a way forward on Tuesday after an election that gave none of them a parliamentary majority, posing the threat of prolonged instability and European financial crisis.