By Angelo Amante
ROME (Reuters) - A deal on forming a government in Italy between the 5-Star Movement and the opposition Democratic Party (PD) looked closer on Monday after the PD dropped a veto on Giuseppe Conte serving another term as prime minister.
Conte resigned last week. His reinstatement, insisted on by anti-establishment 5-Star but resisted by the centre-left PD, had been presented as the main stumbling block to a deal between the two traditionally antagonistic parties.
"There are no vetoes, we want to talk about policies," the PD's Senate leader Andrea Marcucci told reporters asking him about the block on Conte, as he left a meeting of the party's top brass including leader Nicola Zingaretti.
Italy's 10-year bond yield hit the day's low of 1.323% and the spread with German Bunds fell below 200 basis points on the comments.
Leaders of 5-Star were meeting in a Rome hotel to decide on their response.
The movement is divided between factions who favour a deal with the PD and others who believe it would shatter the party's anti-establishment image and accelerate the decline in voter support it has suffered over the last year.
Conte quit last week after the far-right League party, aiming to capitalise on its surging support in polls, declared its 14-month coalition with 5-Star was dead and asked for a snap national election.
Conte, who is close to 5-Star, was a virtually unknown lawyer when he was chosen by the League and 5-Star to lead their government following an inconclusive March 2018 election. He is now Italy's most popular politician, according to opinion polls.
The move to sink the government by League chief Matteo Salvini has not gone to plan, as 5-Star and the PD have moved to try to form an alliance of their own, pushing the League into opposition.
Only the head of state, Sergio Mattarella, can dissolve parliament and he will do so only if parties are unable to reach a deal on forming a new government.
He gave the PD and 5-Star until Tuesday to make progress in putting together a new coalition, whose top priority would be to approve a 2020 budget. Failing that, Mattarella made clear he would call an early election in the autumn.
On Friday, 5-Star and the PD made early progress in finding common ground on policy, but the former had insisted Conte should serve another term while the PD said it wanted someone else, without publicly putting forward a name.
Opinion polls suggest the League has lost between five and 7 percentage points since pulling the plug on the government though it remains easily the most popular party, followed by the PD and 5-Star.
(Reporting by Angelo Amante and Giselda Vagnoni, editing by Gavin Jones and John Stonestreet)