Italy heads towards political gridlock after two days of voting in crucial elections, our foreign correspondent Jonathan Rugman reports.

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Lastest figures show Pier Luigi Bersani's centre-left bloc is poised to take the lower house - but only just - while Silvio Berlusconi's centre-right appears to be leading in the powerful Senate.

A huge protest vote by Italians enraged by economic hardship and political corruption pushed the country towards deadlock with projections showing no coalition strong enough to form a government.

No party or likely coalition appeared likely to be able to form a majority in the upper house or Senate, creating a deadlocked parliament - the opposite of the stable result that Italy desperately needs to tackle a deep recession, rising unemployment and a massive public debt.

The split between left and right is already causing alarm throughout the Eurozone.

Italian financial markets took fright after rising earlier on hopes for a stable and strong centre-left led government, probably backed by outgoing technocrat premier Mario Monti.

Left to right: Pier Luigi Bersani and Silvio Berlusconi  (pictures: Reuters)

Markets respond

The financial markets responded positively to the initial polls. The spread between Italy's benchmark 10-year bonds and the German equivalent narrowed to 260 basis points after results, suggesting optimism that the centre left will be able to form a stable, pro-reform government.

However, on the news that Mr Berlusconi may be dominating the Senate, markets then fell. The Milan based index of blue-chip companies lost a previous gain of four percent, to fall flat at 4pm.

Italy's electoral laws guarantee a strong majority in the lower house to the party or coalition that wins the biggest share of the national vote. However, the elections to the Senate are more complicated, and are decided on a region-by-region basis.

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Bersani's Democratic party teamed up with the more left wing Left Ecology Freedom party, whilst Berlusconi's People of Freedom party has allied with the anti-immigration Northern League. Much of the election battling has been over financial issues.

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