ROME (Reuters) - Centre-left leader Romano Prodi looked set to beat Prime Minister Silvio Berlusconi in Italy's general election, but initial returns indicated he would hold only a wafer-thin majority in the Senate upper house.
Prodi's allies said the nation had clearly turned its back on the billionaire Berlusconi, punishing him for failing to deliver on promises to revive the lagging economy.
However, leaders of the ruling centre-right alliance refused to concede defeat until the Senate result was clear.
Italy's two houses of parliament duplicate each other's functions and a government needs the support of both to take office and then to pass laws.
Exit polls said Prodi's Union coalition had won between 50 and 54 percent of the vote and Berlusconi's House of Freedoms alliance between 45 and 49 percent.
This would give the centre-left a clear working majority in the lower house of parliament, but the picture in the Senate was more confused due to a controversial change in the electoral system rushed into law late last year by Berlusconi.
The new system applies a different counting mechanism for the two chambers, with the lower house elected on a national basis and the Senate on a region-by-region basis.
Nexus said that based on returns from 81 percent of polling stations, the centre-left would take 158 of 309 Senate seats up for grabs in Italy with 151 seats going to Berlusconi.
A further six seats will be awarded to foreign constituencies not yet counted and there are seven life senators, most of whom back Prodi.
"There is a head-to-head between the two blocs (in the Senate). The exit polls once again did not reflect the reality," said Antonio Tajani, a senior politician in Berlusconi's Forza Italia (Go Italy) party.
The interior ministry said turnout at the election was a high 83.6 percent against 81.4 percent in 2001. Berlusconi always maintained that a turnout above 82 percent would help his coalition. Official results are due by the end of Monday.
Prodi's centre-left alliance, which stretches from Roman Catholic centrists to communists, had led in opinion polls for the past two years, benefiting from widespread voter discontent over the stagnant economy and rising cost of living.
Berlusconi, Italy's richest man who created the country's biggest media empire, dominated the often ill-tempered campaign and he upstaged the opposition in the final week of electioneering with a last-minute promise to cut property taxes.
Early returns said Forza Italia had polled between 20-23 percent of the vote -- down from 29.4 percent in 2001.
Although this is a sharp decline, it would still make Forza Italia the largest single force in Italian politics, enabling Berlusconi to keep control of the centre-right bloc.
Prodi, 66, beat Berlusconi in a 1996 general election, but his government lasted only two years before it was brought down by disgruntled communist allies.
Critics say any new government headed by the occasionally prickly Prodi would suffer a similar fate because of the gaping ideological divide within his multi-party alliance.
In a bid to avoid such a demise in future, Prodi has got all his allies to sign up to a 289-page manifesto that will serve as a road map for his coalition.
The programme pledges to cut labour taxes, provide bigger handouts for families with children, reintroduce an inheritance tax, scrap plans to raise the age of retirement to 60 and launch a crackdown on tax evasion.
On foreign policy, Prodi has vowed a swift withdrawal of Italian troops sent to Iraq by Berlusconi, who is one of U.S. President George W. Bush's closest allies in Europe.
If Prodi's victory is confirmed, he will inherit the unenviable task of cutting the world's third-largest national debt while trying to breathe life into an economy that grew an average of just 0.6 percent a year under Berlusconi.
The next government is not expected to take office for at least a month, with Berlusconi set to stay on in a caretaker capacity until parliament nominates a successor to President Carlo Azeglio Ciampi, whose mandate expires in May.
The president must name the new prime minister and Ciampi says he wants to leave the task to his successor.
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