ROME (Reuters) - Conflicting early forecasts of the result of Italy's election on Monday raised the specter of deadlock in parliament that could paralyze a new government and re-ignite the euro zone crisis.
Officials from both centre and left warned that such gridlock could make Italy ungovernable and force new elections.
Opinion polls have long pointed to the center-left of Pier Luigi Bersani winning the lower house, but projections from RAI state television showed Silvio Berlusconi's center right in front in the Senate - which has equal lawmaking power - but unable to form a majority.
RAI showed the center-left well short of a majority in the Senate even in coalition with Monti, who was seen slumping to only 19 out of 315 elected Senators against a massive 65 for the anti-establishment 5-Star Movement of comedian Beppe Grillo.
Senate votes are counted before the lower house.
The latest projections ran counter to earlier telephone polls that showed the center left taking a strong lead in the Senate as well as the lower house.
Italian financial markets took fright after rising earlier on hopes for a stable and strong center-left led government, probably backed by outgoing technocrat premier Mario Monti.
Such government is seen by investors as the best guarantee of measures to combat a deep recession and stagnant growth in the euro zone's third largest economy, which is pivotal to stability in the currency union.
Berlusconi's declared aim is to win enough power in the Senate to paralyze a center-left administration.
The benchmark spread between Italian 10-year bonds and their German equivalent widened from below 260 basis points to above 280 and the Italian share index lost all its previous gains.
"These projections suggest that we are heading for an ungovernable situation", said Mario Secchi, a candidate for Monti's centrist movement.
Stefano Fassina, chief economic official for Bersani's center-left, said: "The scenario from the projections we have seen so far suggest there will be no stable government and we would need to return to the polls."
The earlier telephone polls on Sky and Rai television after voting ended at 3 p.m. (1400 GMT/9 a.m. ET) had shown the center left 5-6 points ahead of the center right in both Senate and lower house, with Grillo taking third place.
Adding to the confusion, official results from more than 50 percent of polling stations showed the center-left ahead with 32.7 percent against 29.5 for the center-right in the Senate race. The partial official count is often not representative because of the order in which votes are counted regionally.
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 Senate, elected on a region-by-region basis, is more complicated and the result will turn on four key battleground regions. Projections from LA 7 showed Berlusconi winning in three of them: Lombardy, Sicily and Campania.
A Sky television projection showed him strongly ahead in the rich northern region Lombardy, which returns the largest number of Senators, with 38.8 percent against 27.6 for the center left.
BITTER CAMPAIGN
A bitter campaign, fought largely over economic issues, has made some investors fear a return of the kind of debt crisis that took the euro zone close to disaster and brought the technocrat Monti to office, replacing the scandal-plagued Berlusconi, in 2011.
Monti helped save Italy from a debt crisis when Rome's borrowing costs were spiraling out of control, but the polls and projections suggested few Italians now see him as the savior of the country, in its longest recession for 20 years.
A surge in protest votes for Grillo's 5-Star Movement had raised uncertainty about the chances of a stable government that could fend off the danger of a renewed euro zone crisis.
Grillo's movement rode a huge wave of voter anger about both the pain of Monti's austerity program and a string of political and corporate scandals. It had particular appeal for a frustrated younger generation shut out of full-time jobs.
"I'm sick of the scandals and the stealing," said Paolo Gentile, a 49-year-old Rome lawyer who voted for 5-Star.
"We need some young, new people in parliament, not the old parties that are totally discredited."
Bad weather, including heavy snow in some areas, was thought to have hampered the turnout in Italy's first post-war election to be held in winter. This could have favored the center left, whose voters tend to be more committed than those on the right, which has strong support among older people.
Berlusconi, a 76-year-old media tycoon, pledged sweeping tax cuts and accused Monti of being a puppet of German Chancellor Angela Merkel in a media blitz that halved the lead of the center left in opinion polls since the start of the year.
Whatever government emerges will inherit an economy that has been stagnant for much of the past two decades and problems ranging from record youth unemployment to a dysfunctional justice system and a bloated public sector.
(Additional reporting by Stefano Bernabei, Steve Scherer, Gavin Jones and Giuseppe Fonte in Rome and Lisa Jucca in Milan; Writing by Barry Moody; Editing by Robin Pomeroy and Philippa Fletcher)
