Spectre of paralysis hangs over Italy after vote

ROME, Apr 11 (Reuters) Centre-left leader Romano Prodi claimed victory in Italy's election today but his tiny margin raised fears of political paralysis and Prime Minister Silvio Berlusconi's allies demanded a review of the count.

Prodi's alliance won narrowly in the lower house and Sky Italia TV projected that it would have a majority of one or two seats in the upper house Senate thanks to votes of Italians abroad that were still being counted.

''We can govern for five years,'' Prodi told reporters. ''Of course we'll need cooperation, but last night I said we would work for all Italians, not just some of them.'' However, the victory margin was so slim that the centre-right refused to concede and markets worried that Prodi would have a hard time enacting badly-needed reforms, cutting Italy's debt mountain or tackling its budget deficit.

Milan's stock market fell by about 1 per cent over concern about the political uncertainty, and the spread between Italian bonds and German Bunds broadened by one percentage point.

''It's highly unlikely that the kind of majority we will see can pass the necessary reforms,'' Susana Garcia of Deutsche Bank said. Fitch Ratings agency said Italy could be downgraded unless the new government quickly put public finances in order.

DIVIDED COUNTRY In the lower house Chamber of Deputies Prodi's winning margin was around 25,000 votes, a tiny fraction of the 47 million eligible electors.

In the Senate, the centre-left was set to have a one or two seat majority, but definitive results were only expected later on Tuesday as the count of the overseas vote was completed.

''Divided country'' and ''Split down the Middle'' were headlines describing the closest election in Italy's modern history.

Prodi said he was awaiting a phone call from Berlusconi to concede defeat, ''because this is what happens in modern democracies''.

But Berlusconi, who dominated the campaign and wrong-footed his opponents with a last minute pledge to abolish a property tax, remained out of sight while his allies contested the vote and asked for checks on some half a million spoilt ballots.

In an apparent bid to head off any messy battle over the result, President Carlo Azeglio Ciampi, the supreme arbiter of Italian politics, issued a statement praising the ''orderly and correct'' voting process.

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