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Italian Prime Minister Silvio Berlusconi, under huge pressure from international markets and rebels in his party, tried to play his last cards on Monday to hang on to power and denied reports that he could resign within hours.

Reports of a possible resignation had an immediate impact, boosting stock and government bond markets dismayed with the
political disarray in Italy, which has dramatically worsened the euro zone debt crisis.

But a denial by Berlusconi reversed the direction, indicating just how much markets would like to see him depart.

Earlier, Giuliano Ferrara, editor of the Foglio newspaper and a former minister seen as extremely close to Berlusconi, said on his website: "That Silvio Berlusconi is about to resign is clear. It is a question of hours, some say of minutes."

Franco Bechis, deputy editor of the centre-right Libero newspaper, also said on Twitter that the 75-year-old media magnate would resign on Monday night or Tuesday morning.

But Berlusconi said on his Facebook page: "Rumours of my resignation are baseless."

Earlier on Monday, benchmark government bond yields rose to their highest since 1997 at 6.67 percent. Many analysts say yields above 7 percent would make funding costs unsustainable for Italy's huge public debt, one of the highest in the world.

Berlusconi was making a private visit to Milan for a lunch with his children. As recently as Sunday he vowed to stay in power and denied that a party rebellion had robbed him of a workable majority.

Political sources said a late Sunday meeting of leaders of his PDL party had urged him to resign but he was not convinced.

He and his closest aides spent the weekend trying to win back the support of enough deputies to avoid humiliating defeat on Tuesday in a vote to confirm a state financing bill which he has already lost once.

Traitors

Apart from offering wavering deputies government jobs, Berlusconi is branding rebels as traitors to Italy at a moment of crisis and saying that if he falls the country must go to early elections, something many ruling deputies do not want.

Defeat in Tuesday's vote is thought likely to lead either to his immediate resignation or to an order from President Giorgio Napolitano to call a confidence vote.

In addition, Italy's centre-left opposition says it is preparing a no-confidence motion in Berlusconi. It may abstain in the pending vote to expose Berlusconi's lack of support without torpedoing an essential measure.

"Berlusconi is bluffing in a last desperate attempt to save himself. He no longer has a majority in the Chamber," said Dario Franceschini of the main opposition Democratic party.

Interior Minister Roberto Maroni, a senior member of Berlusconi's coalition ally the Northern League, said the writing seemed to be on the wall.

"The latest news leads me to think that the majority no
longer exists and that it is useless (for Berlusconi) to be
obstinate, " Maroni said. The League also says early elections
are the only course if the government falls.
The scandal-ridden 75-year-old media tycoon said on Sunday:
"We have checked in the last few hours and the numbers are certain, we still have a majority."

Newspapers have estimated the number of potential defectors at between 20 and 40, which would be more than enough to topple the government.

Berlusconi has been meeting and telephoning rebels since he returned from a humiliating G20 summit in France on Friday in which he had to agree to IMF monitoring of Italy's progress in reforms he has long promised but so far not implemented.

Italy has the third biggest economy in the euro zone and its political turmoil and debt worries are seen as a huge threat in the wider crisis facing the continent's single currency.

Government bond prices would recover and the yield spread would fall by a full percentage point if the government should fall, according to a Reuters survey of 10 fund managers, market analysts and strategists last week.