Italy's divided PD sets showdown over talks with 5-Star

By Gavin Jones

ROME (Reuters) - Italy's deeply divided Democratic Party (PD) will meet on May 3 to discuss whether to hold talks with the anti-establishment 5-Star Movement on potentially forming a coalition, two months after inconclusive elections.

There are many hurdles to a deal between the two parties, who have been bitter adversaries over the last five years while the centre-left PD was in government.

Acting PD leader Maurizio Martina told reporters there had been "important steps forward" in narrowing the gap but there were still "differences and difficulties", which the party must discuss at its meeting next Thursday.

Italian politics has been in limbo since a vote on March 4 that saw a centre-right alliance led by the anti-immigrant League win the most seats and the 5-Star group emerge as the biggest single party. The PD came a distant third.

No group or bloc came close to winning an outright majority, but mutual recriminations and deep-rooted rivalries have so far stymied all efforts at forming a coalition in the euro zone's third-largest economy.

The PD is split between internal factions that want to go into opposition, led by its former leader Matteo Renzi, and others who want to talk to 5-Star.

The speaker of the Chamber of Deputies, Roberto Fico, has been attempting to mediate between the PD and 5-Star since Monday on behalf of the president, after talks earlier this month between 5-Star and the centre-right made no progress.

"My mandate has ended positively ... a dialogue between 5-Star and the PD has begun," Fico, who is from the 5-Star Movement, told reporters after reporting back to President Sergio Mattarella.

MUTUAL SUSPICION

Mattarella will not hold further consultations before the PD's meeting on May 3, a source in his office said.

That means no new government will be in place for more than two months after the March 4 vote, making it one of Italy's longest post-election stalemates. In the meantime, caretaker Prime Minister Paolo Gentiloni will remain in office.

Financial markets rallied on Tuesday after Martina first opened the door to a possible deal with 5-Star, but several Renzi loyalists quickly dismissed the prospects for an accord.

5-Star has called for the two sides to negotiate a limited set of policies, or "contract" they can both agree to, but there is deep mutual suspicion not just among the parties' leaders but also among many of their voters.

Supporters of Renzi, a former prime minister who quit as PD leader after the election defeat, use the social media hashtag #senzadime (WithoutMe) to express their opposition to talks.

The 5-Star's leader Luigi Di Maio says any eventual government pact would be put to a vote of the movement's members on their internet platform.

Fico said it was important that the two parties focus on policies rather than more divisive personality issues.

This week Di Maio said he had closed the door to a possible deal with the League, responding to a condition posed by the PD, but the situation remains fluid.

Some observers believe the League's leader Matteo Salvini will seek to negotiate an accord after an election on Sunday in the northern region of Friuli Venezia Giulia, which his party is expected to win.

On Thursday Salvini said he believed the "soap opera" between Di Maio and the PD would quickly end in failure, and at that point he would be open to resuming talks with 5-Star.

(Reporting by Gavin Jones; Editing by Steve Scherer and Alison Williams)