* Prime minister-designate expected Wednesday
* Former socialist premier Amato favourite for PM
* Berlusconi surges to 8-point lead in poll
President Giorgio Napolitano completed a rapid round of talks with Italy's parties and is expected to name a new prime minister on Wednesday, ending a stalemate since February's inconclusive election.
Italy has been politically adrift in the middle of a recession as the centre-left Democratic Party (PD), which has the most seats in parliament, failed for two months to cut a deal with the centre-right of former prime minister Silvio Berlusconi or the anti-establishment 5-Star Movement.
But Enrico Letta, the head of a PD delegation, said on Tuesday that his party was willing to join a broad coalition along the lines suggested by Napolitano to parliament on Monday.
"We will adhere to the choices that the president of the republic makes tomorrow," Letta told reporters after a meeting at the president's palace which closed the day of consultations.
Napolitano, who fiercely attacked the parties on Monday for their failure to adopt economic and institutional reforms, called for a broad alliance which would include the PD and Berlusconi's People of Freedom party (PDL).
Berlusconi has gone from strength to strength since the election, capitalising on the centre-left's crisis. An opinion poll on Tuesday by the Tecne agency gave the centre-right a lead of around 8 percentage points.
Former socialist Prime Minister Giuliano Amato is widely considered to be Napolitano's favoured choice for prime minister and it would be a surprise if he were not nominated.
The young centre-left mayor of Florence, Matteo Renzi, emerged as an outside candidate on Tuesday, though he strongly played down the possibility, and Letta has also been named in the Italian press as a contender.
The PDL said it had no objections to Renzi, 38, whom opinion polls rank as Italy's most popular politician, after his name was suggested by senior members of his party, but Renzi himself all but dismissed the idea.
"It's the hypothesis which is most surprising and least probable, I don't think it's on the table," he told reporters
Hopes that a government can be formed by the end of the week gave a further boost to financial markets on Tuesday, with the yield on 10-year Italian government bonds dropping below 4 percent for the first time since 2010 and the spread, or risk premium over German bonds, narrowing further.
Napolitano became the first Italian president to be re-elected on Saturday after parliament had failed in repeated votes to elect a successor.
Berlusconi and the centrist grouping led by outgoing Prime Minister Mario Monti said they would go along with whatever the 87-year-old president proposed, but numerous other groups refused to back a broad coalition government.
The 5-Star Movement led by former comic Beppe Grillo, which won a quarter of the vote and speaks for millions of Italians disillusioned with the entire political class, says it will sit in opposition in parliament.
It will be joined by the leftist Left Ecology Freedom party, the former partner of the PD, which said it also rejected a grand coalition government, and by Berlusconi's allies in the Northern League.
The backing for the new government is likely to be broadly the same as the one that supported Monti's technocrat administration last year until Berlusconi withdrew his support.
Despite the market euphoria, a broad coalition between the right and left, which are far apart on most issues, might struggle for stability or to obtain the parliamentary backing needed for vital economic and political reforms.
The euro zone's third largest economy has been the most sluggish in Europe for more than a decade and mired in a deep recession since the middle of 2011, with no recovery in sight.
At the election the centre-left narrowly won a majority in the lower house but failed to win control of the Senate.
Pier Luigi Bersani, who announced his resignation as PD leader last week, angrily blamed "traitors" in his own party for sabotaging the centre-left's presidential candidates but said the party would have to get over its divisions.
"We have to find some semblance of order otherwise we can't be useful to this country," Bersani told a meeting of PD officials in Rome.
But many rank-and-file PD members have not been able to stomach the thought of cooperating with Berlusconi, a scandal-plagued billionaire who is fighting two separate trials over sex charges and a tax fraud conviction. Several dozen protested outside a party meeting on Tuesday and others have occupied PD offices in a number of Italian cities.
Renzi unsuccessfully challenged Bersani for the PD leadership last year and despite his popularity among the general public is viewed with suspicion by many in the deeply divided party.