UPDATE 3-Italy's top court hears crucial Berlusconi appeal
* Verdict could finally stifle Berlusconi's political career
* Ruling threatens fragile Letta government
* Court adjourns after first day
ROME, July 30 (Reuters) - Italy's supreme court on Tuesday began hearing Silvio Berlusconi's last appeal against a jail sentence and ban from public office in a case which could endanger the country's shaky coalition government if the conviction is confirmed.
On the first day of the hearing, public prosecutor Antonello Mura rejected most of Berlusconi's arguments that a lower appeal court verdict convicting him of tax fraud was flawed, but requested a reduction of his ban from public office to three years from five on technical legal grounds.
He asked the five supreme court judges to confirm a one year jail term on Berlusconi.
The case was adjourned on Tuesday night until Wednesday when the court is expected to hear counter-arguments from the four-times prime minister's defence team, with a verdict expected by Thursday.
If the court rejects Berlusconi's appeal it will be the first definitive conviction for the media mogul in dozens of court cases and mark the end of two decades in which he has dominated politics through his media power and political skill.
It could also plunge the government - an uneasy coalition of Enrico Letta's centre-left Democratic Party (PD) and Berlusconi's centre-right People of Freedom (PDL) - into crisis and bring renewed uncertainty to the euro zone third's largest economy, with potential fallout right across the bloc.
Moderate politicians have urged the court to delay the ruling until September for the sake of political stability.
The 76-year-old media magnate is making his final appeal against the jail sentence and ban from office handed down by lower courts for the fraudulent purchase of broadcasting rights by his Mediaset media empire. Three other people were also convicted in the case.
If definitively convicted, Berlusconi would not normally go to prison because of his age but would have to do community service or serve his sentence at home.
Berlusconi accuses leftwing magistrates of abusing their powers to try to bring him down in more than two dozen court cases since he stormed to power for the first time in 1994.
The case was fast-tracked to be heard by a special summer session of the supreme court to avoid part of any sentence being annulled by the statute of limitations.
Although they are waiting for a signal from Berlusconi, PDL hawks have called for everything from a mass resignation of the party's government ministers to blocking Italy's motorways if the court rules against him.
The departure of Berlusconi from parliament if he is convicted would also raise major questions about the future of his party, which depends on his charisma and wealth.
But a greater risk to the government could come from Letta's faction-ridden PD, with many members already deeply unhappy about being in a coalition with their old enemy. Some may refuse to continue if he is found guilty.
However, both President Giorgio Napolitano, who dragged the parties into a coalition in April after a two-month crisis that followed inconclusive elections, and Letta himself are adamant that Italy cannot afford more instability as it struggles to climb out of its worst postwar recession.
Both major parties may be reluctant to precipitate an election that might produce an even more chaotic result than the February vote in which the populist 5-Star Movement of comedian Beppe Grillo surged to prominence.
Berlusconi has kept his party hawks on a tight leash for months, saying the government must continue. Political sources say this stance was influenced by his lawyers, keen to avoid upsetting the supreme court judges. The mercurial magnate's reaction if he is found guilty is uncertain.
Berlusconi's lawyers have filed 50 objections to the supreme court, which will rule only on legal procedure and whether the lower appeals court properly justified its sentence.
The court has three choices: convict Berlusconi, acquit him or send the case back to the appeals court due to legal errors.
Judicial sources said the prosecutor's request to reduce the ban from public office was because the lower appeal court had made an error in using penal instead of tax law in deciding the punishment.
Even if Berlusconi is found guilty, the ban from holding public office depends on a vote by his peers in the Senate which could take weeks or months.
Berlusconi is also appealing in a lower court against a seven-year jail sentence in June for abuse of office and paying for sex with Moroccan-born nightclub dancer Karima El Mahroug, alias "Ruby the Heartstealer", when she was underage.
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