CORRECTED-UPDATE 1-Debt investors cheer Italy after president elected

Mon Apr 22, 2013 2:54am EDT

(Corrects paragraph two to show not all major blocs suppported Napolitano)

MILAN, April 22 (Reuters) - Investors cheered the re-election of 87-year-old Giorgio Napolitano as president of Italy on Monday, hoping this would accelerate the formation of a new government and end a two-month political gridlock.

Napolitano, elected after days of squabbling thanks to a broad agreement between some of the major blocs, had made clear before the election that he favoured a new government over potentially destabilising new elections.

Italian business leaders have been calling on parties to end the current stalemate and implement measures that can help reverse the current deep economic recession.

The Italian BTP June futures contract was up 75 ticks at 113.75. Traders said the main Italian stock market index, the FTSE MIB, was seen gaining more than 1 percent up at the open.

"The market reaction is justified by expectations Napolitano will form a new government quickly, possibly within a week," Vincenzo Longo, a market strategist with IG Italia.

An inconclusive election at the end of February has left Italy with a split parliament dominated by three litigious parties that have been unable to form a government.

Napolitano, the first president in Italy's history to be re-elected for a second term, will spell out his strategy later on Monday.

A source in the presidential palace told Reuters Napolitano could either hold a quick round of consultations starting on Tuesday or skip them altogether because he has already sounded out party leaders officially twice since the deadlock began.

"Given the strong support behind Napolitano's re-election, it is likely that a grand coalition government will find support too," Credit Suisse said in a note to clients. (Reporting By Lisa Jucca and Francesca Landini, editing by Jeremy Gaunt)

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